annual report & accounts trusted supporter of …2010 2013 2014 flat 12% 2012-2% 2011 14% 16% 8%...

Annual Report & Accounts

Trusted supporter of SMEs, the heartbeat of successful economies

About Sage

We’re helping millions of SME customers to build successful businesses through a deep understanding of their needs and of the markets in which they operate.

Our innovative business software and first-class business support are providing customers with the tools they need to achieve their ambitions and grow.

We’re also delivering a new generation of products and services that combine what customers love about Sage with the benefits of technology and more flexible pricing models.

We have a clearly defined strategy to leverage our strengths and take advantage of the changes taking place in our markets to accelerate our growth.

Delivering on our strategy for accelerated growth

– Organic revenue increased by 5% (2013: 4%), driven by an acceleration in recurring revenue growth to 7% (2013: 6%)

– Statutory revenue contracted by 5%, reflecting the disposal of non-core products last year and adverse foreign exchange movements

– The move to higher quality software subscription revenue continues, with a 29% increase in the organic annualised value of the software subscriber base to £220m (2013: £170m)

– Underlying basic earnings per share (“EPS”) increased 8% to 22.69p. Statutory basic EPS increased by 330% to 17.07p, reflecting the inclusion of a £186m non-recurring loss on disposals in the prior year

– Strong momentum for Sage One as a small business global cloud solution; it is now present in 10 markets and paying subscriptions increased by almost 150% in the year to 86,000 (2013: 35,000*)

* Following the incorporation of several existing SaaS products into the Sage One portfolio during the year, prior year Sage One paying subscriptions have been restated on a like-for-like basis. Without the restatement, Sage One paying subscriptions at 30 September 2014 were 52,600 (2013: 22,400).

The Sage Group plc | Annual Report & Accounts 2014 1

4%

2012

2%

20112011

4%

5%

201420132010

Flat

12%

2012

-2%

2011

14%

16%

8%

201420132010

27.3%

2012

27.3%

2011

27.4%25.5%

27.5%

201420132010

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Underlying operating profit margin

27.5%

Underlying basic EPS growth

8%

Discover more about Sage online

Strategic report

2 2014 highlights

4 Chairman’s statement

6 What we do

8 Where we operate

10 Performance review

12 Our business model

Governance

61 Chairman’s introduction to Corporate

governance

62 Board of Directors

66 Corporate governance report

Financial statements

99 Independent auditors’ report to the

members of The Sage Group plc

104 Group financial statements

110 Notes to the Group financial statements

14 Understanding our customers

24 Our strategy

36 Key performance indicators

40 Principal risks and uncertainties

44 Financial and operating review

50 Corporate responsibility

77 Directors’ remuneration report

93 Directors’ report

156 Independent auditors’ report to the

members of The Sage Group plc

158 Company financial statements

165 Shareholder information

Visit www.sage.com

112%

2012

106%

2011

111%117%

107%

201420132010

Underlying cash conversion

107%

Financial highlights

Inside this report

About our non-GAAP measures and why we use them

Throughout the strategic report we quote two kinds of non-GAAP

measure; underlying and organic. We use these measures in

monitoring performance and incentivising management.

Underlying – underlying measures exclude certain recurring

and non-recurring items, and prior year underlying measures

are retranslated at the current year exchange rates to neutralise

the effect of currency fluctuations. You can read about what

the excluded items are by turning to pages 36 to 39 for our

KPI definitions.

Underlying measures allow management and investors to compare

performance without the potentially distorting effects of foreign

exchange movements, one-off items or non-operational items.

Organic – in addition to the adjustments made to underlying

measures, organic measures exclude part-year contributions from

acquisitions, disposals and products held for sale in the current

and/or prior years. This allows management and investors to

understand the like-for-like performance of the business.

Reconciliations

Reconciliations of statutory revenue, operating profit and basic

earnings per share to their underlying and organic equivalents

are in the Financial and operating review starting on page 44.

Organic revenue growth

5%

We have a vision...Our vision is to be recognised as the most valuable supporter of small and medium sized companies by creating greater freedom for them to succeed.

Sage at a glance

Discover more about Sage online Visit www.sage.com

We’re on track to meet our financial targets.We’re committed to doubling our long-term historic average organic revenue growth rate from 3% to 6% by the end of our 2015 financial year. We will also deliver a 100bps increase in organic operating profit margin to 28% over the same period.

...with a clear strategy

Turn to page 24 for a deeper look at our strategy.

Turn to pages 36 and 37 to see how we’re measuring our strategic progress.

Focusing our business

The benefits of subscription

Capturing the technology opportunity

Rigorous resource

and capital allocation

...that delivers solutions

Our solutions are targeted to address customer needs.We provide small and medium sized businesses ("SMEs") with a range of easy-to-use business management software.

However, software is just the start.

We’ve been at the forefront of providing SMEs with proactive business support alongside their software product for many years. Our global network of local experts is helping millions of customers to overcome day-to-day business problems, giving them the confidence and freedom to be successful.

Our core products: on-premise and in the cloud

Our connected services

We address the SME market by dividing it into three segments because we recognise that the needs and characteristics of a small business differ from those of a larger business.

...to the SME market

Turn to page 6 for more onour products and services.

Accounting

Payments

ERP

Mobility Business intelligence

HR and payroll

CRM

Turn to page 14 to read about what’s important to our SME customers.

Start-up and small businesses0 – 20 employees

Small to medium sized businesses10 – 200 employees

Mid-market100 – 500 employees

2 The Sage Group plc | Annual Report & Accounts 2014

2014 highlights

A year of significant progress

Our progress in 2014 demonstrates we’ve made strategic and financial progress. This momentum underpins our confidence that we will achieve our organic revenue growth and organic operating profit margin targets in 2015.

October 2013Sage One Accounts Extra launched in the UK, which broadens the appeal of Sage One to a wider range of users with the introduction of multi-currency, multi-user and multi-company capabilities.

Launch of Sage One Accounts in Canada.

May

Steve Hare announced as Sage’s new Chief Financial Officer, bringing significant financial and operating experience from his time at Apax Partners and Invensys plc.

AugustAnnouncement of our launch plans for Sage ERP X3 Online, our global cloud solution for mid-market businesses who want to move their infrastructure to the cloud.

Stephen Kelly announced as Sage’s new Chief Executive Officer, succeeding Guy Berruyer on 5 November 2014.

Existing start-up and small business SaaS products incorporated into Sage One family in South Africa.

AprilLaunch of Sage 100 Online in France, our hybrid cloud solution for French SMB businesses.

Launch of Sage One in Switzerland.

JulySage Summit 2014 took place in Las Vegas, where over 5,000 customers and business partners were in attendance.

€16m acquisition of Exact Lohn, a payroll

business serving SMBs in Germany, is

announced to the market.

Organic revenue

growth for the first

half of 2014.

5%

November

Sage ERP X3 convention in Lisbon, Portugal, where Sage ERP X3 version 7 is unveiled.

Sage’s former Chief Executive Officer Guy Berruyer announces his intention to retire.

Sage reports organic revenue growth for the first half of 2014 of 5%.

n

JuneLaunched Sage Murano Online Standard Edition and Sage Murano Payroll Online in Spain.

Steve Hare, Chief Financial Officer


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

FebruaryCommercial launch of a range of connected services in North America, including Sage Mobile Sales, Sage Mobile Service and Sage Billing and Payments. Sage Report and Sage Customer View mobile apps are also launched in France.

Launch of Sage One Accounts in Portugal.

January 2014Launch of first global brand campaign across Europe, the US, Africa and Australia, demonstrating how Sage helps people around the world to manage their business with confidence.

Drummond Hall joined Sage’s Board of Directors as a Non-executive Director. Drummond brings extensive, broad-based marketing and corporate strategy experience from his role as Chief Executive of Dairy Crest and from time spent with Procter and Gamble, Mars and PepsiCo.

September$158m acquisition of PayChoice, a provider of payroll and HR services to SMB businesses in the US, is announced to the market.

MarchInna Kuznetsova joined Sage’s Board of Directors as a Non-executive Director. Inna brings a wealth of sales, business development and marketing experience to Sage from her time at CEVA Logistics and IBM.

Launch of Sage 300 Online inNorth America.

Stephen Kelly, Chief Executive Officer

Inna Kuznetsova, Non-executive Director

After the year-endLaunch of Sage Contaplus Flex in Spain.

Launch of Sage One in Brazil.

Launch of Sage View for Accountants in North America.


Chairman’s statement

We remain on course to deliver the financial targets we have set for 2015, with organic revenue growth of 5% and organic operating profit margin of 27.5% reflecting continued progress towards our goals.

Nothing ever stands still at Sage. We have seen another

year of improved revenue growth in 2014 and have

made significant progress towards our aim of delivering

a step-change in both the level and sustainability of growth.

We remain on course to deliver the financial targets we have

set for 2015, reporting organic revenue growth of 4.9%

and organic operating margin of 27.5% for the year. The

acceleration of the move to subscription driving strong

recurring revenue growth demonstrates the quality of

this revenue growth.

We have appointed Stephen Kelly as Chief Executive Officer.

We will now drive the next phase of our strategy. We are

building on sound foundations.

Our portfolio – modern, innovative solutions addressing the needs of our customers

The key initiatives underpinning the strategy continue to

progress well. We are capturing the benefits of a more global

approach: “think globally whilst delivering locally.” Sage One

and Sage ERP X3, as global products, demonstrate this

change. Sage One is well established as our global cloud

solution for smaller businesses, differentiated in the market

by global breadth, delivery of a truly localised customer

experience and 24/7 support. At the other end of our size

spectrum, Sage ERP X3 continues to prove its attractiveness

as our global solution for mid-market customers.

We continue to transform the value we offer customers

by providing the benefits of online, connected and mobile

experiences. Importantly, we do this through powerful

technology that is non-disruptive for the customer, which

supports their progressive move to the cloud. Our disciplined

approach to portfolio management has seen investment

prioritised to these key initiatives at the expense of legacy

products. Effectively, the portfolio is self-funding the

investment in growth.

Purposeful innovation is a feature across our portfolio.

We have built cloud solutions and brought them to market

across our three segments. We are investing in mobility,

with a focus on applications that bring value to all

our customers across a range of user requirements.

For example, for micro businesses, we have launched

the Sage One mobile app, whilst with Sage ERP X3

version 7, we have a mid-market solution with mobility

at its core.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Our work on modernising existing products means that

on-premise customers can benefit from mobility without

compromising their core solution. We are also investing in

remote collaboration, ensuring our customers can work

efficiently with their accountants and across their businesses.

Business model transition to drive shareholder returns

There are many commentators who wonder how well Sage

can transition its business model to cope with the cloud.

Quietly, and without fanfare, Sage is doing this. By putting

customer needs at the heart of all we do, the Company is

showing in its rapid roll-out of cloud services, and related

features, its responsiveness to change. The Company also

has not forgotten its installed base of customers, not all of

whom want to travel on this journey at the same pace. In

offering customers choice in how they deploy their software,

combined with customer support which is second to none,

Sage is differentiated in the market. We consider customer

satisfaction is a better measure of progress than simple

cloud-based contract numbers.

Sage has built a subscription pricing capability that is making

a tangible difference in the business, with more to come.

Linking subscription to pricing, product and technology

initiatives has proven an effective strategy to drive strong

growth of Sage’s subscription base. The transition to a

subscription-based model creates a more active and more

valuable relationship with a customer for life. Subscription is

a key driver for Sage, supporting both our customer-centric

approach and our strategy for growth.

A focus on shareholder returns is at the heart of the

strategy. The Board believes that high-quality and sustainable

long-term revenue and earnings growth, combined with a

disciplined approach to capital allocation and progressive

dividend policy, will drive superior returns for shareholders.

In the past year, we have made new investment in payroll

software in the United States with the acquisition of

PayChoice. This acquisition strengthens Sage’s position in

payroll and HR services in the US and accelerates Sage’s

move to the cloud in this market. The acquisition is wholly

consistent with our strategy of putting customers at the

heart of what we do and provides greater service to our

core customer base. We will continue, in a disciplined way,

to seek such opportunities.

The Board

Early in the year, Guy Berruyer indicated his desire to

retire from the Company. In the 21st century, natural

retirement like this will become increasingly rare, and

it is to his credit that Guy has reached the end of his

17-year career with the Company happily in this manner.

He has made a major contribution to the Company and

has established platforms and structures that will last long

after he has retired. We all wish him well in his retirement.

Sage has only had three Chief Executives in its history

and I am delighted that Stephen Kelly joins us as the fourth.

He has a deep background in software success and in

understanding the needs of SMEs. Whilst, of course, he

will want to consider for himself Sage’s evolution, he has

indicated his support for the key pillars of the Company’s

strategy: increasing revenue growth through focusing our

business, capturing the technology opportunity, and gaining

the benefits of subscription. We welcome him to Sage.

We were also joined by Inna Kuznetsova, Drummond Hall

and Steve Hare on the Board during the past year. They

bring valuable and different perspectives to our deliberations.

Finally, on Board-related matters, Drummond Hall has

succeeded Ruth Markland as Chairman of the Remuneration

Committee with effect from 5 December 2014. Ruth remains

as Senior Independent Non-executive Director. I am grateful

for all her diligence as Chair of the Remuneration Committee.

In summary

It has been a year of further progress – strategically,

operationally and financially. There is, however, no

complacency, and in such rapidly changing markets we

continue to need to focus our energies on shorter decision

timelines, rapid deployment and strong customer focus.

We can only do this successfully with excellent people

and, on behalf of the Board, I would like to thank all our

employees and partners for their very considerable efforts

in the past year. I look forward with confidence to your

Company’s response to further changing customer

demands in the year ahead.

Donald Brydon, Chairman

The Corporate governance report starts on page 66.

Read more about the Board on pages 62 and 63.


What we do

Our products and services

Our software is solving real business problems and harnessing the benefits of new technology, whilst remaining simple, efficient and a pleasure to use.

However, Sage is about much more than just software.

We take the lead in foreseeing the implications of changes that will impact SME businesses, particularly in relation to new legislation, and use this understanding to deliver training and support to our customers that instils them with greater confidence.

Core products

Accounting

Our accounting software gives our

customers total control over their

finances, invoicing and stock, and

provides clear visibility over their

profits, cash and financial position.

HR and payroll

Our HR and payroll solutions

are simple, secure and efficient,

helping our customers to remain

compliant and pay their employees

accurately and on time.

ERP

Our Enterprise Resource

Planning ("ERP") solutions are

designed to help customers

streamline, consolidate and

rationalise their business

operations and processes.


Connected services

Mobility

Our mobile applications give our

customers access to their data

anywhere and anytime, helping

them to stay in touch with every

aspect of their business.

CRM

Our integrated CRM software

helps our customers to maintain

more productive relationships

with their customers. This helps

to drive repeat business and more

effective up-selling.

Business intelligence

Our business intelligence

solutions are helping customers

overcome data complexity

and obtain greater insight into

their business so that they can

make more informed decisions.

Payments

Our payments businesses let our

customers take payments through

their websites, in person using

a card reader, or directly from

electronic invoices.

Our focus on integrating payments

into our core accounting and ERP

software means these transactions

are recorded automatically into our

customers’ systems, saving them

time and reducing the risk of error.

Support

We are in regular contact with our customers over the telephone or online.

We have over 30,000 conversations with them each day

on topics ranging from accounting queries and advice on

new legislation, to technical aspects of our software.

We also expand our support services during periods of peak

activity, such as during the tax filing season or when new

legislation comes into effect, to help our customers when

they need us most.

Turn to page 18 to hear more from the people who help

our customers every day.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

7

Our markets

Each of our segments has different characteristics and requirements, which provides us with a range of opportunities to bring great products and services to our customers.

Our annual Sage Business Index survey helps us remain close to what matters most to SMEs across the globe by gauging their level of business confidence. Almost 14,000 respondents now take part in the survey, and you can read more about this year’s findings at www.sage.com/businessindex.

Start-up and small businesses (“SSB”)

Routes to market

Direct

We sell direct to customers in most of

our major markets via local websites,

over the telephone and through specialist

field-sales teams.

Accountant partners

Accountants buy software from us to

help them run their practices, and over

48,500 accountant partners also recommend

our products and services to their clients.

Business partners and resellers

We benefit from a network of around

20,000 business partners, who act as an

important reseller channel and also provide

installation, training and support services

to businesses with more complex needs.

Small to medium sized businesses (“SMB”) Mid-market businesses

0-20employees

10-200employees

100-500employees


* Remainder derived from payments and accountants.

68%of total

customer base*

30%of Group

revenue*

18%of total

customer base*

34%of Group

revenue*

3%of total

customer base*

16%of Group

revenue*


Where we operate

A global footprint built with local expertise

Sage has a presence in 23 countries and sells software all over the world. Our established market positions provide us with a strong platform to bring products and services to both new and existing customers.

Localised customer experiences

One of Sage’s strengths is providing highly-localised software and support

to customers. We’re able to do this effectively because our teams are based

in-country, so they’re close to the business and legislative issues that affect

SMEs in these locations.

Rather than simply translating software into multiple languages, we build

our products so that they fundamentally reflect the interface, functionality

and legislative conventions a person would expect to see in their region.

Our ability and commitment to do this sets us apart from many other

software vendors.

Our global products

Whilst we’re focused on delivering highly-localised products, a key principle

of our strategy is to take a more centralised approach to developing global

product roadmaps so that we are more efficient, take advantage of our

scale, share best practice across our business and utilise our global talent

more effectively.

We therefore aim to perform the majority of development work for global

products through teams that may be centralised in a particular country

or region, and leave the remaining work to in-country teams who tailor

the product to meet the needs of the local market.

Two important examples are Sage One and Sage ERP X3.

Sage One

Sage One is our global cloud solution for start-up and small businesses.

Following its launch in the UK & Ireland ("UKI") in 2011, Sage One is

now commercially available in 10 countries including the US, Canada,

Germany, France, Spain, Portugal, Switzerland and South Africa.

The relatively recent launch of Sage One, together with its low monthly

subscription, means it is not yet a material contributor to Group revenue.

However, Sage One is an important product in helping us to grow market

share amongst start-up and small businesses.

The main Sage One development team is based in the UK. The architecture

of Sage One is modular so that regional development teams can build

functionality addressing local legislation that seamlessly plugs in to the core

product. Examples of these modules include quotations in France and debit

notes in Spain.

Sage ERP X3

Sage ERP X3 is our global ERP solution for the mid-market. It is sold in

over 100 countries, serves 228,000 users across 4,800 customers and

is supported by 290 business partners.

Sage ERP X3 is a sophisticated solution offering multi-currency, multi-

company, multi-language and multi-legislation support. The latest version

commercially available is Sage ERP X3 version 7, which is web-native

and incorporates a modern new user interface design. We have also

announced the planned release of Sage ERP X3 Online, which offers

our customers the benefits of greater customisation and control whilst

allowing them to deploy their infrastructure in the cloud.

This flexibility means Sage ERP X3 can truly address a global market.

Americas

Revenue £412m

Organic operating profit

£106m (25.7% margin)

3,585 employees

Key products

Product Market segment Product type

Sage One SSB Accounting

Sage 50 US and Canada SSB Accounting

Sage 100 SMB ERP

Sage 300 SMB ERP

Sage ERP X3 Mid-market ERP

Sage Payment Solutions Multi-segment Payments

32%Group revenue


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Europe

Revenue £750m


£215m (28.6% margin)

7,114 employees

Turn to pages 48 and 49 for regional performance commentaries.

AAMEA

Revenue £144m


£39m (27.2% margin)

2,134 employees

Key products

Key products

There are an additional 142 employees based in centralised or Group functions (2013: 145).


Sage One SSB Accounting and payroll

Sage 50 in the UK SSB Accounting and payroll

Sage Ciel in France SSB Accounting and payroll

Sage Contaplus

in Spain SSB Accounting

Sage 100 in France SMB ERP

Sage 200 in the UK SMB ERP

Sage Murano

in Spain SMB ERP

Sage Offi ce Line

in Germany SMB ERP


Sage Pay Multi-segment Payments


Sage One SSB Accounting and payroll

Sage Pastel SSB Accounting and payroll

Sage VIP Payroll SMB Payroll

Sage Micropay SMB Payroll

Accpac ERP SMB ERP

Sage Handisoft Accountants Accounting


Sage Pay Multi-segment Payments

57%Group revenue

11%Group revenue


These results are important in demonstrating we are on track to achieve

our financial targets for 2015. Reporting organic revenue growth of 5%

(2013: 4%) and operating profit margin of 27.5% (2013: 27.1%) means

the Group remains confident of achieving the targets of 6% organic

revenue growth and organic operating profit margin of 28% in 2015.

Recurring revenue grew organically by 7% (2013: 6%), whilst organic

SSRS revenue contracted by 1% (2013: flat). The increase in recurring

revenue growth is a key feature of these results and reflected a strong

software subscription performance. Software subscription revenue grew

organically by 28%, reflecting acceleration in the second half on the 23%

growth reported in the first half. The recurring revenue growth and strong

software subscription performance are important indicators of the

underlying strength of the business and underpin confidence in the

improved growth trajectory expected for 2015.

Recurring revenue, which includes software subscriptions, payments

and support, now represents 73% of Group revenue (2013: 71%).

The continuing shift to a higher quality revenue mix reflects the increased

contribution from software subscription. The software subscription

contract base continues to grow, with over 450,000 contracts across

the Group.

The increase in organic revenue growth has been achieved despite

a weaker performance in payments, particularly in North America.

Improving the performance of payments and driving the number of

integrated payments customers remain key priorities, particularly as

they have performed below our expectations this year. Likewise,

underperformance in the mid-market in France continued as a drag

on growth. This was reflected in the lower full-year organic growth rate

of 7% (2013: 12%) reported for Sage ERP X3, our global solution for the

mid-market. Sage ERP X3 grew well internationally, however, delivering

20% growth outside of France. The ambition for double-digit long-term

growth for Sage ERP X3 remains.

Software subscription is growing well, in line with our plans for measured adoption

We are pursuing more active relationships with our customers through

subscription. Our progressive approach is based on demonstrating the

benefits and flexibility subscription offers them, rather than by mandatorily

moving them to subscription pricing. The resulting commitment to offering

customers choice around how they can buy a software licence reflects

the importance we place on customer satisfaction and retention. The

emphasis is therefore on Sage to present customers with differentiated

propositions that persuade them to make the transition to subscription.

The growth in the annualised value of the software subscriber base of

29% to £220m, together with subscription contract renewal rates in the

region of 90%, is good evidence that our measured approach is effective.

The move to subscription is attractive for Sage and our customers as

it builds greater and more predictable revenue streams for the future.

By balancing subscription adoption across new and existing customers,

we are managing the potential near-term impact on revenue of the

transition to subscription. The opportunity we have with existing

customers around growing share of wallet, improving retention rates

and increasing recurring contract attachment, is helping us to manage

the near-term impact of subscription displacing licence revenue.

Our cloud solutions, core product modernisation initiatives and growing

portfolio of connected services are providing subscription catalysts for

all of our customers, regardless of whether their core system is on-premise

or in the cloud. Core product modernisation is a particularly significant

opportunity with the Sage installed based. It creates the flexible

architecture required to liberate customer data and make it available in

the cloud so we can deliver an enriched desktop experience enhanced

with connected services. Core product modernisation has been an

important catalyst in driving subscription across our portfolio in 2014.

Key highlights during the year include Sage 50 Payroll in the UK,

Sage Ciel Flex in France and Sage 100 i7 in France.

Sage 50 Payroll auto-enrolment connected service

This connected service, which helps SMEs in the UK comply with new

pension legislation, has been a strong driver of growth. It is only available

on subscription and is supported on the latest version of Sage 50 Payroll.

This revenue is incremental because we typically added new services into

customers’ existing premium support plan bundles in the past.

At the end of September 2014, the annualised value of our

auto-enrolment subscription contract base was approximately

£8m. This reflects an attachment rate amongst customers that

needed to comply with auto-enrolment in 2014 of over 60%. We

are well placed to continue supporting businesses that will need

to comply with auto-enrolment legislation going forward.

Sage Ciel Flex

Sage Ciel accounting and payroll products are aimed at start-up and

small business (“SSB”) customers in France. The success of the tiered

subscription offer called Flex shows that SSB customers are willing to

move to a recurring subscription relationship if they see a product offers

added value. At the end of September 2014, the annualised value

of our Sage Ciel Flex subscription contract base was approximately

£9m, an increase from £5m in the prior year. Over 60% of customers on

subscription have chosen to subscribe to Sage Ciel Ultraflex, which is the

highest tier available and includes premium features and cloud capability.

Sage Ciel Flex demonstrates well the reactivation of off-plan customers.

Approximately 50% of revenue from new Flex contracts secured in the

financial year were with customers who were previously not on a recurring

support plan.

Performance review

On track to deliver the 2015 financial targets

“ I would like to thank Guy Berruyer for leading Sage to deliver an encouraging set of results with a strong finish to the year. I reconfirm the Board’s financial targets for 2015 and recognise the 2014 results as an important milestone on the path to meeting them. Our financial performance demonstrates the strength of Sage’s global business and the quality of relationships it has with millions of SME customers worldwide.”

Stephen Kelly

Chief Executive Officer


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Sage 100 i7

Sage 100 i7 is aimed at small to medium sized customers (“SMB”)

in France. It is a premium subscription product and has now been

a driver of upgrade activity in the French installed base for several

consecutive reporting periods. It offers a major user interface upgrade,

can be accessed through a web browser and incorporates business

intelligence and spreadsheet integration capabilities. We also launched

Sage 100 i7 Payroll during the year, which has driven upgrade activity

in the second half.

At the end of September 2014, the annualised value of our Sage 100 i7

ERP and payroll subscription contract base was over £16m. The vast

majority of the subscriber base is made up of migrating existing

customers who have a support contract, where the strategy is to

drive higher average selling price on subscription. This reflects the

premium positioning of the product. Sage 100 i7 is either available

on a subscription-only contract or a lower-priced subscription contract

together with an up-front fee. These fees are helping us to smooth the

impact our subscription transition is having on our SSRS revenue base.

Momentum building in the cloud, with 86,000 Sage One paying subscriptions globally

Sage One is well established in the market as our global software-as-a-

service (“SaaS”) solution for smaller businesses, with a ca.150% increase

in paying subscriptions to 86,000 (2013: 35,000). We continue to push

ahead with our global roll-out for Sage One, which is available in 10

countries, so that we are well placed to drive growth in markets as

cloud adoption accelerates.

We continue to make good progress with Sage One in the UKI, where

the number of paying subscriptions more than doubled to 47,000 from

over 21,000 in the last 12 months. This represents a strong increase in

average run-rate to over 2,100 per month, up from around 1,300 per

month last year, and reflects acceleration to 2,300 per month in the

second half of the year.

We also have strong traction with Sage One in South Africa, where

the number of paying subscriptions increased from 8,700 to over

21,000 in the last 12 months. Adoption in Continental Europe remains

low, reflecting nascent uptake of cloud solutions amongst SSB customers

more generally in that market. In North America, the number of paying

subscriptions remains behind plan, but we continue to build a product

portfolio to provide an attractive cloud platform for small businesses.

We see accountants as a key channel for driving Sage One growth,

with the introduction of Sage One Accountant Edition in North America

an important development in 2014. Driving accountants’ engagement

and the introduction of Sage One Extra in the US and Canada are key

priorities for 2015.

As part of the Group’s continued investment in the cloud, our SaaS

entry-level products in France, Germany and South Africa were

redesigned and incorporated into the Sage One portfolio during the

year. This involved rebranding and aligning the user interface and

product workflows to create global consistency. Excluding the newly

incorporated products, year-end Sage One paying subscriptions were

52,600 (2013: 22,400).

Sage’s hybrid cloud solutions for SMB customers are gaining traction,

with the number of paying subscriptions doubling during the year to

1,500. The launch of Sage ERP X3 version 7 in the summer means

we also offer the mid-market a solution with mobility and web access

at its core. We expect to see further good progress in adoption for these

solutions in 2015.

Disciplined approach to resource and capital allocation

62% of total research and development (“R&D”) expenditure (2013: 52%)

and 57% of total sales and marketing (“S&M”) expenditure (2013: 52%)

is now directed towards the Invest portfolio. This has resulted in an overall

increase in absolute spend during the year across Invest products of

17%, alongside an incremental improvement in organic operating profit

margin to 27.5%. The disciplined approach to resource allocation

supports the 28% organic operating profit margin target in 2015,

which we are on track to deliver.

We are also disciplined in our approach to acquisitions, focusing on

opportunities that support growth in our core business and meet our

returns criteria. During the year we announced two in-fill acquisitions,

which strengthen our payroll capability in the US and Germany, and

acquired the remaining 25% of Folhamatic in Brazil. We also performed

an impairment review and recorded a £44m non-cash charge relating

to our Brazilian operations. This reflects the deterioration in the financial

and economic environment in Brazil. Notwithstanding this impairment,

we remain confident about our growth prospects in Brazil, as reflected

in the 9% organic revenue growth reported for 2014.

Consistent with our focus on shareholder returns, the Board is proposing

a 7% increase in the total ordinary dividend for the year to 12.12p per

share (2013: 11.32p per share). The ordinary dividend for the year is

covered 1.9x by underlying earnings per share.

The Board

In August 2014, we announced the appointment of Stephen Kelly to the

Board as Chief Executive Officer, effective from 5 November 2014. Earlier

this year, Steve Hare joined the Board as Chief Financial Officer, effective

from 3 January 2014.

We also announced the appointment of two new non-executive directors

to the Board, namely Drummond Hall and Inna Kuznetsova, effective

from 1 January 2014 and 6 March 2014 respectively. In November 2013,

Mark Rolfe and Ian Mason retired from their roles on the Board as

non-executive directors.

Summary and outlook

These results are important in demonstrating we are on track to

achieve our financial targets for 2015. Revenue growth is increasing,

the subscription base is growing and cloud momentum is building.

The Group remains confident of achieving 6% organic revenue growth

in 2015, with the anticipated acceleration in growth weighted to the

second half of the year, and organic operating profit margin of 28%.

“ Looking ahead, I believe that Sage, as a trusted partner to our customers, can be even more instrumental in supporting the success of SMEs around the world. I look forward to building on Sage’s technology leadership, both in the cloud and on-premise, together with our outstanding customer support, to the benefit of our current and future SME customers.”

Stephen Kelly



Key inputs to our business modelTalented people

We rely on the

flair, commitment and

collaboration of 12,975

employees around

the world.

Trusted brand

The Sage brand is

synonymous with

supporting SMEs.

By striving to be our

customers’ greatest

supporter, we remain

their trusted partner.

Market insight

Our focus on the

SME market means

we have developed

a deep understanding

of what is important to

small businesses.

Resource allocation

Our approach to how

we deploy our R&D*

and S&M** resources is

governed by where we

see our best opportunities

for future growth.

Local knowledge

Our skill at localising our

solutions has allowed us

to contend with a range

of different legislative

environments across

the world.

Value createdShareholder returns

Dividends and

share repurchases

Society

Tax paid in the year

Group organic operating profit

Representing a

margin of 27.5%

Employees

Wages and salaries

Resource allocation

Investment in R&D*

and S&M**

£217mDecrease of 62%^

£107mDecrease of 10%~

£360mIncrease of 7%

£617mDecrease of 1%

£417mIncrease in spend of

17% on Invest products

Our business model

What we do...

Growing economies rely on successful SME businesses. We’re committed to helping them achieve this success by being their most trusted supporter.

We’ve been dedicated to the success of SME businesses

for over 30 years through the provision of localised products

and services that help our customers to run their businesses

with confidence.

Our support offering is a key strength and is highly valued

because it gives our customers somewhere to turn if they

have a technical problem, an accounting question or when

they’re affected by legislative changes.

Our commitment to supporting our customers in this way,

where we look to maintain ongoing and active relationships

with them, differentiates us from other software vendors.

It also means we’ve built a strong base of recurring revenue

that underpins 73% of our total revenue, which is derived

from 1.8 million support, subscription and payments

relationships that we have with customers across the world.

Ultimately, we have the resources, vision and resilience to

be there for our customers over the long term as their

businesses grow.

* Research and development.

** Sales and marketing.

^ The decrease is due to the payment of a special dividend of £199m last year alongside an increased rate of share repurchasing as we worked towards meeting our net debt to EBITDA target ratio of 1x, which we met in June 2013. The total ordinary dividend per share has increased by 7% to 12.12p this year.

~ The underlying effective tax rate has fallen this year to 27% as a result of a change in the mix of tax rates that we are exposed to across the globe. For more information on our tax policies, turn to the Financial and operating review starting on page 44.

Retain Grow

ActivateAttract

Read more about our strategy and how it links to our business

model on pages 24 to 35.

Our strategy sits at the heart of our business model and dictates how we respond to the changes taking place

in the markets we serve.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Group organic revenue

5% organic growth

£1,306m73% recurring in nature

Key activities

– R&D*

– S&M**

– Support

…how we create value

Open to read more about the key elements of our business model.

Routes to market

– Direct

– Accountant

partners

– Business partners

and resellers

Key elements of our business model

AttractThese are some of our unique selling

points and are the reasons why

customers are attracted to Sage.

ActivateOver the years, we’ve built a strong recurring

revenue base by providing customers with

additional services beyond their core software

product, particularly through our support offering.

Software subscription offers us the opportunity

to have closer relationships with more of our

customers, particularly those who do not maintain

a support contract and own their software product

via a perpetual licence. This will help us to build

on our existing base of over 450,000 software

subscription contracts.

GrowTechnology and the cloud are changing how

software is delivered and how businesses

use their data. The new wave of value-

adding services we are providing will help

us to deepen the relationships we have with

our customers and drive higher growth.

RetainWe aim to keep our customers for life by delivering them the

complete, integrated suite of software, services and support.

This helps us to deliver great experiences that make our

customers want to stay with us as their businesses grow.

…how we create value

Installed base

Standalone support

Software subscription

and support

Trusted brand

amongst SMEs

Software perpetual licence

Connected services

Customer for life

Strong

accountant and

business partner

ecosystem

Localised

products and

services

Technology

and pricing

choice

First-class

support

More users

Higher value

products and

services (up-sell)

More products and

services (cross-sell)

Sage One paying subscriptions

86,000(Up 146%)

Hybrid cloud paying subscriptions

1,500 (Up 100%)

Sage ERP X3 customers

4,800 (Up 14%)

Growth drivers KPIs and other metrics

Number of contracts

1.8mDown 3%

Organic annualised value of the software subscriber base

£220mUp 29%

Premium support penetration

92%Rate maintained

– Activate customers through a

support relationship

– Activate customers through

a software subscription

relationship – particularly

where those customers

don’t have a support contract

– either for their core product,

a connected service or both.

– Attract more new customers

through key products such

as Sage One, hybrid cloud and

Sage ERP X3

Number of payments cross-sell customers

15,800Up 14%

– Grow licence average selling price

("ASP") through software upgrades

and migrations

– Grow support ASP through

up-selling support customers to

premium support

– Grow share of wallet by expanding

the number of services taken by

each customer

– Grow share of wallet by expanding

the number of paying users for

each product

Recurring contract renewal rate

83%Up 1%

– Minimise the number of customers

who leave us for another provider

– Minimise the number of customers

cancelling their support contract

– Drive higher net promotor scores

Our sources of revenue

Recurring revenue

Organic growth: 7% (2013: 6%)

Recurring revenue comprises:

– Maintenance and support (“M&S”)

– Software subscription

– Non-software subscription

– Payments

Around 73% of Sage’s total revenue is recurring, with

customers paying on a monthly, annual or usage basis in

return for a range of different services.

Our subscription and payments contracts can be

characterised as “pay-to-play”, where customers retain

the right to use a software application or service for as

long as they continue to pay.

Recurring revenue is much less susceptible to economic

cycles because many of these services are either critical

to a business’s ability to continue trading or are seen as

indispensable and value-adding.

Our focus on having more active and productive

relationships with all of our customers, preferably through

subscription but also through support relationships,

means recurring revenue growth is a strong indicator of

whether we’re succeeding in delivering on our strategy.

Software and software-related services ("SSRS")

Organic contraction: 1% (2013: flat)

SSRS revenue comprises:

– New licence sales

– Upgrades and migrations

– Professional services

– Other software-related services

SSRS revenue captures perpetual licence sales, where

customers pay an up-front fee for the right to own and

use their software forever. This represents the way

software has been sold traditionally in the industry for

many years.

SSRS revenue is typically more susceptible to economic

cycles. When the economy is buoyant, businesses have

more confidence and so are more willing to invest in their

IT infrastructure.

However, when economic conditions are more

challenging, businesses tend to reduce unnecessary

expenditure and delay big investment decisions.

Our focus on a measured transition to software

subscription will mean that, over time, revenue for our

software products will increasingly shift out of SSRS

and into recurring revenue.

14 The Sage Group plc | Annual Report & Accounts 2014 14 The Sage Group plc | Annual Report & Accounts 2014

The world of an SME is an exciting but rapidly changing place, with each day bringing new competitive, economic and regulatory challenges.

Understanding our customers

Customer demand drivers

Sage has been the advocate of SME businesses for over 30 years and we’ve developed an intimate understanding of their needs over that time. We continue to play an important role in helping them achieve success through the innovative products and value-adding services that we provide.

Our global presence and considerable resources mean our customers trust us to stay the course with them as they grow and be there for them when they need us most.

Addressing our marketsWe address the SME market by dividing it into three segments:

– Start-up and small businesses (“SSB”)

– Small to medium sized businesses (“SMB”)

– Mid-market businesses

We do this because the characteristics of a small business differ markedly to those of a larger business. Recognising these differences and tailoring our products and services accordingly gives us a competitive advantage in our markets and is one of the reasons why customers choose us.

Customer demand driversWe regularly speak to our customers to understand what matters most to them. We’ve found there are some key needs that resonate particularly strongly with SME businesses, which fall into five areas. They want:

Meeting customer needsOur product and service offering has evolved in direct response to what our customers have told us is important to them. This has influenced our approach to support in particular, which we manage as a value-adding service in its own right, rather than as basic aftercare.

The demand drivers have also defined our strategy, where we are adapting our product and service offering in response to trends in our markets, particularly in relation to cloud technology and subscription.

This section considers each demand driver and explores how support, technology and subscription are helping us to more effectively meet the challenges posed by each.

– Access to a knowledgeable person for support

– Peace of mind around legislative compliance

– Appealing and intuitive software

– Control to achieve success and grow

– More efficient working

TechnologySee page 20

SubscriptionSee page 22

SupportSee page 18

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Access to a knowledgeable person for supportMost entrepreneurs don’t go into business to be

a bookkeeper or an accountant, yet maintaining

good accounting records is important.

As businesses grow the range and variety of

issues they face also grows, with increased

operational complexity, international expansion,

hiring more employees and a greater reporting

burden just some examples of new challenges

they might face.

Many small businesses don’t have the resources

to maintain accounting, payroll and regulatory

expertise in-house. This is why millions of our

customers value being able to turn to us for help

through our support offering.

Peace of mind around legislative complianceOur support offering is an effective way for

our customers to remain compliant with new

legislation. In recent years we’ve seen a raft of

changes affecting SME businesses, particularly

around electronic filing and payroll.

Our support offering

Over the years, we’ve been pioneering in delivering proactive

business support to SMEs where our support experts

provide technical, accounting and regulatory advice to

our customers.

We deliver much of this support directly either online or

over the telephone, where we receive over 30,000 calls

a day, and we even offer on-site support when required.

Our professional services offering that delivers

system installation, maintenance and support services

to customers with more complex or bespoke ERP

requirements is supported by a global network of

around 20,000 business partners.

Our support services are delivered locally, which sets us

apart from our competitors. Our customers value being

able to contact someone who speaks their language,

who is familiar with their local reporting conventions and

who is available during the working day in their time zone.

The need for support

There is a greater propensity for larger businesses to need

support. For example, around a third of start-up and small

businesses have support, whereas the rate for SMBs is

over 60%, and for mid-market customers it is around 75%.

Customer demand drivers

This is because whilst start-ups are least likely to have any

kind of in-house accounting expertise, they also have the

simplest needs. Once they become accustomed to their

software and the regulations that affect them, they can

often grow comfortable being self-sufficient.

However, larger businesses contend with greater

complexity and reporting burdens, so a higher proportion

of them rely on the support services provided by us and

our business partners.

Premium support

Our premium support offering represents the highest tier

of support and is where customers gain access to the

most value-adding features, including free selected software

updates, priority call answering and online training materials.

For many customers these services are highly valuable

because they are often the only available resources they

have to help them identify, understand and comply with

new legislation that affects them.

We are also highly proactive in preparing our customers

for new legislation by running awareness campaigns and

working with government to not only understand what is

changing, but to use our understanding of the SME market

to shape those changes.

Always up to date with subscription

Paying for software on a subscription basis is also an

effective way to remain compliant. As a subscription

customer is essentially purchasing a service from us, they

are entitled to all future software upgrades as soon as

they become available.

Customers therefore don’t need to worry about whether their

software has the necessary features to allow them to comply

with new standards or conventions, which means they

can concentrate on running their businesses.


Control to achieve success and growSaaS and mobility offer businesses an

unprecedented level of control because they

provide access to data anytime, anywhere.

However, there are a range of use cases for

this technology that vary across the segments

we serve.

Appealing and intuitive softwareThe cloud and technology are redefining the

expectations people have of the software they use.

Touch-based user interfaces, “big data” analytics,

more powerful mobile devices, mobile applications

and greater integration between services are just

some examples of how technology is helping our

industry meet customer needs.

Understanding our customers continuedCustomer demand drivers continued

Software-as-a-service (“SaaS”)

SaaS is a great example of where the cloud is delivering

real change for start-up and small businesses. For example,

many entrepreneurs have traditionally used spreadsheet

software as their first accounting solution largely because

they usually already have access to it.

Accounting software has also tended to address the

needs of the bookkeeper rather than the owner-manager

in the past, making accounting seem complicated to

those who need to maintain business records but aren’t

financial experts.

SaaS is changing this by providing owner-managers

with straightforward, easy-to-access accounting solutions

that make bookkeeping much less onerous.

SaaS is delivered through an internet browser and is

designed to be much more intuitive, elegant and simple

so that non-financial users can pick it up quickly.

The rise of SaaS has created new market opportunities

across the world, particularly in our markets in North

America and the UK where new technology adoption

is most pervasive.

Our SaaS solution for start-up and small businesses is

Sage One – to read more about Sage One, turn to page 31.

Engaging user experiences

Advances in software design and the user experience

aren’t confined to new SaaS solutions. The success of

touch-based smartphones and tablets has given rise to

a change in how users expect to interact with the

software they use.

Customers want software to be modern, engaging and

visually appealing, which makes it more intuitive and

learnable for the average user.

We’re responding by modernising the user interface design

of some of our most successful products.

Examples of where customers are already seeing these

improvements include the UK version of Sage 50 and

Sage ERP X3 version 7, which employs a completely new,

web-first user interface.

Tailored mobile applications

Modern user interfaces are also helping to make

business software accessible to a greater range of users.

Financial users have been the primary target audience

for business software traditionally, but business data

has significant utility outside the finance office.

For example, field-based salespeople and engineers can

be much more efficient if they’re able to access data and

manage their work flows in real time.

When this information is presented in a way that is intuitive

to them, rather than a financial user, it is easier for them

to engage with it to improve their productivity.

We’re using the latest cloud technologies to liberate

customer data so that it can be accessed by a range of

new mobile applications, including mobile billing, sales

and payments. This is helping to broaden the appeal and

relevance of business information to more users.

Mobility use cases

In the case of start-ups and small businesses, it is likely the

highly-mobile owner-manager is both the bookkeeper and

the decision maker, so being able to record new transactions

and view key business information whilst travelling is

extremely valuable.

In the case of a more established business, decision makers

find value in having mobile access to business intelligence,

but core accounting and invoice processing will almost

certainly be managed by office-based finance teams.

We believe making these distinctions is important so that

we are clear on where and how we will add the most value.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


More efficient workingSubscription pricing and a change in the way

software is being delivered to customers is

providing businesses with greater flexibility.

Data security, maintenance and customisation

More established businesses need to weigh the benefits

of moving data and business infrastructure to the cloud

against the operational risks of doing so.

Businesses are often concerned about who owns their

data and where it is stored when they move it to the

cloud because they need to consider the privacy,

business interruption and disaster recovery implications.

They may also have concerns around exercising less

control over when software updates and maintenance

are carried out, which can be an issue if they occur during

critical reporting periods and something goes wrong.

Customisation is important to larger businesses,

particularly in the mid-market. However, depending on

the technology involved, there may be limits to how much

a pure cloud solution can be tailored to the specific needs

of a particular business.

On-premise software remains popular because it continues

to provide businesses with comfort and flexibility around

these issues. However, we don’t want these businesses to

have to curtail their cloud vision and we’ve been innovative

in addressing this challenge.

Our cloud ERP products offer our SMB and mid-market

customers the best of both worlds; they can place their

data and business infrastructure in the cloud but continue

to have a level of control that is more consistent with an

on-premise environment.

Lower-risk investment decisions through subscription

Investing in IT infrastructure is often expensive. High

up-front costs make new ventures risky because, if they

fail, businesses are left with equipment and software they

don’t need.

Subscription lets businesses achieve their growth plans in a

controlled way without taking on this additional risk. Capital

decisions become operating decisions because subscription

payments are made on a monthly or annual basis, whereas

a perpetual licence purchase requires a higher, up-front fee.

Businesses can therefore put the necessary systems in place

quickly, for moderate additional cost and in a way that can

be scaled back with limited financial impact if the new

venture isn’t successful.

Pay for what you use

The industry is moving away from delivering software as

one large application in favour of several smaller applications,

with each one offering a discrete piece of functionality.

When coupled with subscription, this lets businesses pay

for only the software they need, rather than requiring them

to buy everything an application can do even if they don’t

use all of it.

We’re doing this through our connected services offering,

which includes integrated payments, CRM, business

intelligence and mobility.

We’ve also developed technology that looks to give all

of our customers access to these benefits even if they

don’t want to move all of their infrastructure to the cloud.

Many established businesses have invested heavily in their

existing system and would prefer not to start over.

Greater efficiency through collaboration

Technology is helping users to work more collaboratively with

each other, their accountants and their business partners.

We’ve seen some of the strongest evidence of the benefits

of collaboration with our accountant partners and their small

business clients.

Accountants are looking for ways to reduce their costs

and add more value. They want to be able to offer a more

rounded and consultative service, as well as saving time and

reducing cost by transferring client data and documentation

in the cloud.

As more businesses move towards housing some or all

of their data online, either because they use a cloud product

or because they have a connected on-premise solution,

accountants will be able to do much more for their

customers in real time, work more efficiently and expand

their addressable market beyond their local area.


1.5msupport contracts

30,000+calls per day

3,000+technical expertsglobally

Turn to pages 26 to 28 to read about how we’re looking to build active relationships with customers who don’t have a support contract.

Jim McGlen, Head of Customer Services for

Start-Up and Small Business in the UKI, instils in

his team that good customer service is about

getting the basics right. “It’s being polite. It’s

listening. It’s using your resources and expertise,

and being truly passionate about our customers,”

he explains. “At Sage we are focused on giving our

customers a breath-taking experience – one that

exceeds all expectations. We strive to deliver the

kind of service that people will talk about in the

days to come with their friends and colleagues.”

Our customer service employees undergo a

rigorous training process that equips them with the

knowledge they need in order to guide and support

businesses in the right way. Lucy Hogg, customer

support advisor for Sage One, has first-hand

experience of this, “Teams are coached in every

aspect of the job. When I joined Sage One I spent

an intense five week period learning both the theory

and the practice side of the role. A coach would sit

with me and listen to my practice calls, reviewing

what went well and what needed to be worked on.”

Lucy believes this training, combined with our

commitment to helping customers run their

businesses, sets us apart from other software

companies. “When Real-Time Information, which

was a new piece of legislation, was brought

out there was a big initiative to help educate our

customers in the changes that would affect their

business. It is refreshing to work for a company that

doesn’t just sell products but wants to be there for

our customers, effectively acting as a helping hand

to them.”

We are constantly changing and evolving the way

that Sage delivers customer service based on

what our customers are telling us, and our people

are actively engaged in requesting feedback. For

example, we introduced a 24/7 Sage One support

line after recognising that customers do not always

have the opportunity to contact us during normal

working hours.

Lucy adds, “I’ve worked at some companies

that are very inward facing – always focused

on what they need to do to hit targets. At Sage

the emphasis is definitely on ‘what do we

need to do to help our customers more’.

It is always about the customer and that is

something that makes me incredibly proud

to work here.”

Providing customerswith first-class support

Meeting customer needs

Support

Meeting the people who are incredibly passionate about supporting SME businesses.

Linked customer

demand drivers:

– Access to a

knowledgeable

person

for support

Sage customer support, UKI


Purposefully innovatingwith technology

Meeting customer needs continued

Technology

As a self-taught photographer, Jason Savage

understands the need to travel light. Over the past

few years he has turned his hobby into a successful

business venture that takes him all over the world,

making the ability to work and respond on the

move vital.

Based in Montana, USA, Jason became a

Sage customer in 2013 after finding other products

aimed at businesses of his size too complex

and not able to offer the mobility he needed.

“Having round the clock access to my finances

whilst I’m out on a shoot is extremely valuable to

me”, Jason explains. “I travel frequently and am

sometimes on the road for long stretches, so being

able to keep up with my accounts and my clients

at the same time makes my job a lot easier.”

Jason uses Sage One in conjunction with Google

Apps, which means he can access the documents

that are essential to his business quickly and easily

whilst collaborating and liaising with clients and

suppliers in real time.

Turn to Capturing the technology opportunity on pages 29 to 32 to read more about how we’ve responded to the varying needs of the customers in our segments.

“Being mobile is paramount and working in

this way gives me the freedom to manage

my cash flow and send invoices from

wherever I am, whether it’s on a laptop

or my smartphone.”

Jason pays for Sage One on subscription, which

is something that suits the requirements of his

business well. “Paying in this way is great for me,”

he says. “It’s less worrisome as there is no

up-front expense.”

As a business owner Jason cites reliability, support

and ease of use as the most important factors

when choosing business software. “I chose Sage

One because of its clean, simplistic layout and

usability as well as its mobile features. The fact that

my data is also automatically backed up to Google

Drive from Sage One gives me extra reassurance

and peace of mind.

“We have recently relocated and knowing that I

have the support of helpful, informed people at the

end of the phone if I ever need them is encouraging

to me as a business owner.”

Small businesses can share, store and collaborate using Sage One and Google Apps for Business.

86,000Sage One paying subscriptions globally at 30 September 2014

Jason Savage Photography, USA, using Sage One

Linked customer

demand drivers:

– Appealing and

intuitive software

– Control to

achieve success

and grow

– More efficient

working


www.jasonsavagephotography.com


As a family run business, it is important to owner

Patricia Baldy that she is contactable not only in

the office but from home on an evening, during

weekends and over holiday periods. She explains,

“We run a haulage company so it is not unusual for

customers to call very late in the day to book a last

minute job. I need to be on hand to speak to them,

fill out the required paperwork and pass their details

on to the staff that will be on the ground moving

them, sometimes the next day.”

Locamont 2M currently employs a team of five

people based out of their office in Vitrolles, South

of France. Patricia has used Ciel products for a

number of years after being introduced to using

the software as part of her accountancy training.

Initially attracted by the product’s simplicity and

ease of use, she has recently taken the decision

to pay by subscription as part of the Ultraflex

package, adding, “I like the fact that I know

how much we are spending on our software

month-on-month and can budget accordingly.”

When discussing Sage Ciel Flex’s cloud features,

which are only available on subscription, Patricia

is quick to allay any fears around security by saying,

“In the past I wasn’t that disciplined in backing up

my data regularly – I didn’t have the time. Since

moving some of our software to the cloud I have

no concerns about the safety of our documents.

I also like the fact I can go to my accountant with

just a laptop and make any changes that I need

to there and then without having to carry hard

copies of everything.”

The company is also utilising some of the mobile

apps that are offered as part of the subscription.

Patricia continues, “I use the apps that help us

to plan – being able to forward plan is critical to

the future of our business and I find being able to

access them through my phone very useful.”

Greater flexibilitythrough subscription

Meeting customer needs continued

Subscription

Subscription provides our customers with control and visibility over their cash flow.

Locamont 2M, France, using Sage Ciel Ultraflex

Linked customer

demand drivers:

– Peace of mind

around legislative

compliance

– Control to

achieve success

and grow

– More efficient

working

Turn to pages 26 to 28 to read about why subscription is such an important part of our strategy.

£9mAnnualised value of Sage Ciel Flex subscription contract base at 30 September 2014

60%Sage Ciel Flex customers have chosen Ultraflex, the highest tier available


www.locamont2m.com


Our strategy

On track to meet our financial targets

Our strategy is helping us to respond to the changes taking place in the markets we serve in a way that leverages the strengths of our business model.

Our strategy is the driving force behind our commitment to doubling our long-term historic average organic revenue growth rate from 3% to 6% by the end of our 2015 financial year. We are also committed to delivering an increase in organic operating profit margin of 100bps to 28% over the same period.

Description


We’re focused on transitioning our business

model away from selling software on a

perpetual licence and towards providing

a holistic range of products and services

to our customers on subscription.


Technology and the cloud are offering us

the chance to bring a new range of value

propositions to our customers, which holds

the key to a number of commercial benefits

that can help us to drive higher growth.


Through greater focus on our best

opportunities for success, working together

across the world in a more collaborative

way and by setting priorities globally, we

can better exploit our strengths.

Rigorous resource and capital allocation

With our consistent, strong cash flows,

we retain considerable financial flexibility.

Our main strategic priority remains an

acceleration of growth, both organically

and through targeted acquisitions, and

we are investing in support of that aim.




Rigorous resource



Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Performance Associated KPIs Associated risks

Turn to pages 36 and 37 for our strategic KPIs.

Turn to pages 42 and 43 for a list of our principal risks and mitigations.

Software subscription is the primary driver of organic

revenue growth this year. We now have over 450,000

software subscription contracts that have an annualised

value of £220m. Sage Ciel Flex and Sage 100 i7 in

France, and Sage 50 Payroll in the UK, have all delivered

good subscription growth this year and are some of the

best examples of our subscription drivers in action.

– Organic annualised value of

the software subscriber base

– Unsuccessful transformation

of business

– Risks associated with

change management

– Inadequate processes

and systems

We’ve continued to deliver on our technology roadmap this

year. Sage One is now live in 10 countries, our cloud ERP

solutions for SMB business are all commercially available

and Sage ERP X3 version 7 is now live with an online offering

announced. We’ve also started to release modernised

versions of some of our other leading on-premise products

so that we can deliver a cloud-enriched experience to many

more of our customers.

– Adoption of Sage One

– Adoption of hybrid cloud

– Sage ERP X3 organic

revenue growth

– Integration of payments

– Loss of data

– Unavailability of online solutions

– Loss of source code and

intellectual property

– Issues with traditional products

We have continued to reallocate investment towards

our best opportunities for future growth and increased

profitability, which has driven a 17% increase in R&D and

S&M expenditure on products categorised as "Invest".

– Research and

development reallocation

– Sales and marketing reallocation

– Inability to attract skills

and resources

– Poor resource allocation


and systems

This year we have increased the total ordinary dividend by

7% to 12.12p. We have returned £91m to shareholders

through share repurchases as part of maintaining our

1x net debt to EBITDA target ratio. We also made

two material acquisitions in Germany and the US

for a combined consideration of around £110m*.

– Net debt to EBITDA ratio

– Interest cover

– Poor resource allocation


and systems

* Based on prevailing exchange rates at the time of announcement.


Our strategy continued

A fundamental change for Sage

Software subscription represents a fundamental change

for Sage because we’ve historically sold our products

predominantly through perpetual licensing, where customers

pay once up-front and own their software forever.

We’re currently driving a measured transition to subscription.

This builds on our strong existing recurring revenue base,

which is underpinned by our maintenance and support

offering and represents 73% of total revenue.

Software subscription driving growth

We have over 450,000 software subscription relationships,

which means we already have an established subscription

base in our business.

However, the emphasis on subscription is increasing as cloud

technology and greater customer acceptance are driving

acceleration in the rate of adoption. For example, this year

we’ve seen a 29% increase in the organic annualised value

of the software subscriber base to £220m.

Subscription and usage-based services such as payments,

which we refer to as "pay-to-play", now represent 26% of

our total revenue and were the biggest contributor to organic

revenue growth this year.

Subscription and our business model

Subscription is an important strategic priority, particularly

as it offers us a range of ways to accelerate growth.

More active relationships through subscription

A key principle of our business model is that we want to

have active and ongoing relationships with our customers.

Active relationships are important because they help us to

better support our customers and grow the range of services

they take from us because we are better able to anticipate

their needs.

Historically, we’ve focused on doing this through our

support and payments offerings, which has helped us

to build over one million support-only relationships and

over 200,000 payments relationships.

We are focused on both the transition of this existing

contract base to software subscription, and also on

establishing active relationships with customers who don’t

have a support or payments contract by encouraging them

to move to subscription for their core software product.

Dual model approach

Even though we are focused on transitioning customers

to subscription, retaining their business and ensuring

they’re satisfied is always of paramount importance.

This is why we’re driving a measured transition where

perpetual licensing remains available alongside subscription,

which preserves our customers’ ability to choose and

gives them the flexibility to move when they’re ready.

The benefits of subscriptionSubscription is changing the nature of software purchasing, with customers electing to pay an ongoing fee in return for a service, rather than just a product.

The financial impact on Sage

There have been a number of market communications in

recent years from other software vendors where they expect

to suffer a short-term dip in revenue as they transition their

business to subscription. This is the result of subscription

revenue being recognisable over time, whereas perpetual

licence revenue is typically recognised up-front.

We are well-placed to mitigate the likelihood and extent

of such a dip. In particular, we are in a position of strength

with 73% of revenue already recurring in nature, the majority

of which would not be displaced by subscription. The

continuing availability of perpetual licensing also creates

a portfolio effect so that the impact of any revenue

displacement is gradual.

Subscription growth drivers

There are also a number of other important subscription

drivers available to us, several of which help us to generate

incrementally new revenue.

These drivers include attracting new types of customer

to Sage who are looking to pay on subscription, reactivating

existing customers who are not on another type of recurring

contract with us, and increasing subscription adoption

amongst existing customers more generally through

up-selling and cross-selling a broader range of subscription-

based products and services.

Organic annualised

value of software

subscriber base(£m)

170

+29%

220

2013 2014

Split of revenue by type

SSRS 27%

Maintenance and support 47%

Software subscription 16%

Payments 8%

Non-software subscription 2%

26%Pay-to-play

revenue


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ortSubscription growth drivers

Building on over 450,000 existing software subscription contracts

New types of customerAttract

Reactivation of off-plan customersActivate

Cross-selling and greater lifetime valueGrow

Greater customer loyaltyRetain

Turn to pages 12 and 13 to read more about our business model.

Attract

New types of customer

Subscription is making it easier for new types of businesses

to become Sage customers because the up-front cost barrier

to ownership is lowered.

For example, many start-ups have historically run their business

on spreadsheets until they grew big enough to justify the cost of

a software package. However, SaaS technology and subscription

pricing have combined to create a new market for simple and

cost-effective accounting software.

We’re addressing this important new opportunity with Sage One,

our global SaaS solution, which attracted 51,000 new paying

subscriptions this year.

Activate

Reactivating off-plan customers

There are millions of businesses who use our software,

and many also maintain some form of ongoing contract with

us for additional services such as payments or support.

Subscription offers us the chance to engage with customers

who don’t have one of these contracts, which we refer to as

“off-plan” customers.

These customers require a catalyst to move onto a recurring

software subscription contract with us, and our cloud technology

initiatives are providing compelling reasons to move.

Most importantly, we’re able to drive subscription adoption across

the majority of our customer base because we’re committed to

bringing cloud-based connected services to all of our customers,

even where they choose to keep their core system on-premise.

Activating off-plan customers through subscription is a significant

growth opportunity because it is immediately revenue-enhancing

and does not displace any existing revenue streams.

Grow

Cross-selling

We’re able to maintain a much more intimate relationship with

a subscription customer, which means we can anticipate and

be more attentive to their needs.

This can help to increase our effectiveness at cross-selling other

relevant products and services because we can be more targeted

in our approach.

Our connected services strategy is providing us with the platform

to drive this cross-sell and increase our share of wallet.

Greater lifetime value

Subscription customers pay on an ongoing basis for as long as

they require the use of their software and are entitled to receive

all future upgrades to their product. The value of a subscription

relationship is therefore greater than that of a perpetual licence

over its lifetime.

This makes subscription a much higher-value revenue stream

over the long term that gives us greater visibility and certainty

over our future revenue potential.

Lifetime value growth is the primary opportunity we have with

our existing on-plan customers, particularly as they are already

active and are paying to take additional services from us.

Technology-driven added-value features and intelligently priced

product and service bundles are providing these customers

with reasons to swap their support contract for a software

subscription relationship.

Retain

Greater customer loyalty

Perpetual licence customers typically buy software in multi-year

cycles. In the intervening years we may not have frequent

contact with these customers, unless they also have a support

relationship with us, so making them aware of upgrades or

other relevant products and services is more difficult.

Subscription changes the dynamics of the relationship because

there is no multi-year buying cycle, customers are entitled to

all upgrades as soon as they are available, and we’re able to

work much more closely with them to ensure they’re satisfied.

This reduces the likelihood a customer might be tempted

to switch because their needs are being met.

Software subscription has very high rates of renewal as a result

– we see renewal rates of around 90% by volume. This compares

to renewal rates on support contracts of around 80%. Retaining

our customers is incredibly important because we want them to

be satisfied so that we preserve the long-term revenue potential

contained within our installed base.


Our strategy continuedThe benefits of subscription continued

Progress this yearWhilst subscription is fuelling growth across a range of different products in a number of countries,

there are three stand-out performers this year that are good examples of the subscription drivers in action:

– Sage Ciel Flex in France

– Sage 100 i7 in France

– Sage 50 Payroll in the UK

Sage Ciel Flex

Our subscription contract base for Sage Ciel Flex, an accounting and payroll product aimed at

SSB businesses in France, was approximately £9m at the end of September 2014. Over 60%

of customers have chosen to subscribe to Sage Ciel Ultraflex, which is the highest tier of the

Sage Ciel Flex offering and includes premium features, cloud functionality and mobility.

Whilst Sage Ciel Flex has been successful in driving growth in new customer acquisition and

existing customer migrations, it is also a great example of off-plan customer reactivation. For example,

approximately 50% of revenue from contracts secured this year was derived from customers who were

previously not on a recurring support plan.

These customers are typically sensitive to price, so they need compelling reasons to move away from

what they already have. However, our focus on providing value-adding features that increase efficiency

and ensure customers are legislatively compliant is encouraging many of them to move to subscription.

Sage 100 i7

Sage 100 i7 is aimed at SMB businesses in France, is only available on subscription and has now been

a driver of upgrade activity in the French installed base for several consecutive reporting periods. It offers

a major user interface upgrade, can be accessed through a web browser and incorporates business

intelligence and spreadsheet integration capabilities.

We also launched Sage 100 i7 Payroll during the year, which has helped to sustain upgrade activity into

the second half. At the end of September 2014, the annualised value of our Sage 100 i7 ERP and payroll

subscription contract base was over £16m. This represents penetration of around 30% of the entire Sage

100 customer base, which is an increase from 14% at the end of last year.

Sage 100 i7 is either available on a subscription-only contract or a lower-priced subscription contract

together with an up-front fee, with the majority of customers choosing the latter option. These fees are

helping us to smooth the impact our subscription transition is having on our SSRS revenue base.

Sage 50 Payroll

New legislation requiring all employees to be enrolled in a company pension scheme is affecting many

SME businesses in the UK. Our new auto-enrolment pension module, a connected service that integrates

with Sage 50 Payroll, is helping our customers to comply with the new requirements.

The auto-enrolment module is only available on subscription and is supported on the latest version of

Sage 50 Payroll. However, as part of our measured transition, Sage 50 Payroll customers can retain their

existing perpetual licence for the core product so they don’t have to move to subscription completely if

they’re not yet ready.

At the end of September 2014, the annualised vaue of our auto-enrolment subscription contract base

was approximately £8m. This represents a penetration rate of over 60% amongst customers who were

required to comply this year.

Turn to pages 36 and 37 to view our strategic KPI progress.

KPIs used to measure progress in this cornerstone:

– Organic annualised value of the softwaresubscriber base

Turn to page 22to hear from a SageCiel Flex customer.

Turn to the fold-out on page 13 to read about the difference between SSRS and recurring revenue.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Connected services Mobile applications

Third-party applications

We want to deliver the power of the cloud to all our customers, regardless of how they deploy their core system.

Core system

Capturing the technology opportunitySage has a passion for technology innovation that is purposefully applied.

Or

On-premise Cloud

The right technology for our customers, powered by the cloud

We’re providing relevant cloud solutions to both new and existing customers across our segments.

We know that moving straight to the cloud is a great option for some businesses. For others, they need to weigh moving

to the cloud against other things that are important, including preserving existing infrastructure, maintaining control of

systems and data, obtaining peace of mind around security and retaining the ability to customise.

Our technology vision

Choice of deployment

We want businesses to be able to choose how they deploy

their core system – either in the cloud or on-premise – so

that they can make a progressive transition without having

to compromise or face significant disruption.

Data liberation

We want businesses to have anytime, anywhere access

to their data regardless of their deployment choice, whether

that is in the cloud or on-premise.

More users and greater collaboration

Through data liberation we want a broader range of users

to be engaged with business information that is available

to them in real time, which will empower them to be

more effective.

Data and process intelligence

We want to make business data work harder by driving

deeper insight, and through intelligent business process

automation. We believe customers should spend more time

on running their business and less time on data manipulation

and processing.

Amazing cross-device experiences

People are no longer confined to a desktop computer

when they work. We want them to be able to roam

seamlessly between different devices and achieve the same

things on a smartphone or tablet as they would on their PC.

Choice of deployment through flexible architecture

We’re providing flexibility so that customers can transition

to the cloud in a way that is comfortable for them and that

recognises their needs will change over time.

Our deployment choices fall into three categories:

– Software-as-a-service ("SaaS") cloud

– Connected on-premise

– Cloud ERP

We’ve considered the technological merits of these

deployment choices in the context of the needs of

SME businesses to deliver a range of targeted solutions.


Our strategy continuedCapturing the technology opportunity continued

SaaS cloud

SaaS solutions are delivered through an internet browser, are

available on subscription and are easy to use and maintain.

Start-ups, in particular, typically want to go straight to a SaaS

cloud solution because they have no existing infrastructure,

have relatively straightforward needs and want to get

started quickly.

Our global SaaS solution designed for start-up and small

businesses is Sage One.

Sage One also simplifies bookkeeping, accounting and

payroll, which makes it much more accessible to owner-

managers who often aren’t accountants and don’t have

financial expertise.

Connected on-premise

Many established businesses have existing on-premise

systems that work well and on which their employees

are trained. They want to move to the cloud in a way that

doesn’t require them to dispose of what they already have

or that leads to significant disruption.

On-premise software also continues to offer the greatest level

of control and functional richness, and customers don’t want

to give up some of those features so they can benefit from

the cloud.

We’re delivering the best of both worlds to our customers

by modernising our existing on-premise products and

liberating the data that is contained within our customers’

systems. We’re using this data to enrich the desktop

experience with connected services, cloud collaboration

and mobile applications.

We’ve already started rolling out some of these capabilities

in the UK with Sage 50, in Spain with Sage Contaplus and

in North America with the Sage Data Cloud.

Cloud ERP

For our SMB and mid-market customers who are ready

to migrate to the cloud, we’ve developed a range of cloud

ERP solutions that allow them to make the transition easily

and with the minimum of disruption.

Cloud ERP solutions can offer our customers the option

of outsourcing their IT infrastructure, which can save them

money and means they no longer have to think about

maintaining and replacing their own equipment.

As businesses grow, their system scales easily and they

only need to pay for the extra capacity they need.

These solutions also preserve some of the benefits of

on-premise software, particularly around control over data,

customisation and compatibility with third-party applications.

The power of connected services

Connected services allow us to separate features and

functionality from the core system and deliver them as

smaller applications. This heralds a move away from annual

release cycles and core applications that have perhaps

become big and bloated over time as they have evolved.

Customers purchase these services as additional bolt-ons

to their core product, which provides them with greater

flexibility and is more cost-effective because they don’t have

to pay for features they don’t use. This invariably involves

establishing a subscription relationship with us, and you

can read more about subscription on pages 26 to 28.

Most importantly, our technology architecture gives all our

customers the chance to benefit from connected services,

whether they’re running their business in the cloud or

on-premise.

We’re able to add significant value through tight integration of

these connected services into the core system because we

make the whole suite.

Our key connected services

Mobility

Our mobile applications are bringing tailored user interface experiences to

a wider range of users. For example, field-based salespeople and engineers

are benefiting from our mobile sales, billing and payments applications

because they can be more productive whilst they’re on the road.

We’ve also launched smartphone companion applications for our small

business solutions including Sage One, so owner-managers can create

and edit business data even whilst they’re away from the office.

CRM

Our CRM solutions provide new ways to interact with customers,

particularly by taking advantage of social media and the latest mobile solutions.

We are focused on providing CRM solutions that are integrated with our

ERP products because this helps our customers benefit from increased

efficiency and productivity by gaining a single, customer-centric view across

their business.

Integrated payments

Our integrated payments solutions seamlessly record receipted payments

information into our customers’ core system, saving them time and

reducing the risk of error. Our Sage Exchange technology in North

America also provides customers with a holistic overview of their entire

payments ecosystem from all sources, whether they be online or card

machine transactions.

Business intelligence

Our business intelligence solutions are improving business decision making.

They’re helping our customers overcome data complexity so that they have

better insight into what is happening in their business.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Commercial opportunities for Sage

The technology changes we’re delivering give us a range

of opportunities to drive higher growth across the four key

elements of our business model:

Attract

Technology is creating new markets for us to

serve, particularly amongst start-ups where SaaS

technology is encouraging more of them to move

away from spreadsheets and begin using

accounting software.

Utilising new technology in our products is incredibly

important if we are to attract new customers to Sage

and live up to their expectations. This means that

constant and purposeful innovation must lie at the

heart of what we do.

Activate

When we sell cloud solutions to our customers

we’re creating a closer and more active relationship

with them because these products are always sold

on a subscription basis.

Technology therefore represents an important

delivery system for subscription.

The cloud and our growing range of connected

services are acting as catalysts, where customers

are willing to move to a subscription relationship with

us because of the real added-value they provide.

You can read more about the benefits of subscription

for our customers starting on page 14, and for Sage

starting on page 26.

Grow

Connected services are helping us to increase

our share of wallet (i.e. the average revenue per

customer), because customers are more likely to

take several services from us if they can do so in

a flexible way by only paying for what they use.

We’re also increasing our share of wallet by bringing

these services to a broader range of non-financial

users by focusing on tailoring the user experience

to their specific needs.

Retain

Customers are more likely to stay with us if we’re

meeting their needs and they are satisfied with

what we do for them. Our research tells us that

when several services are able to work together

seamlessly, customer satisfaction increases. This

is why we’re focusing on the tight integration of

connected services with our core products.

1,500Hybrid cloud paying subscriptions at 30 September 2014

86,000Sage One paying subscriptions at 30 September 2014

7%Sage ERP X3 organic revenue growth in the year ended 30 September 2014

Turn to pages 12 and 13 to read more about our business model.

Our cloud solutions

Sage One

Sage One currently comes in five versions: Cashbook,

Accounts, Payroll, Accountant Edition and Accounts Extra.

Cashbook and Accounts are designed to meet the basic

needs of start-ups, where the owner-manager is often

also the bookkeeper. Payroll simplifies the management

of a payroll of up to 15 employees. Accountant Edition

allows accountants to access and edit their clients’ data

in the cloud.

We launched Accounts Extra in the UK in October 2013.

It is suitable for slightly larger businesses with a small finance

team because it handles multiple user accounts, and

supports international trading and multi-company accounting.

The launch of Extra was an important milestone in

broadening the appeal of Sage One to more established

businesses, where price points and user numbers are higher.

Hybrid cloud for SMBs

We’ve completed the launch of cloud versions of our key

ERP products across our major markets for SMB customers:

– Sage 200 Online in the UKI

– Sage Murano Online in Spain

– Sage 300 Online in North America

– Sage 100 Online in France

– Sage Office Online in Germany

These products give SMBs a clear migration path to the

cloud, whilst retaining a user experience that is familiar

and consistent and doesn’t require them to compromise

significantly on customisation and control.

Sage ERP X3

Sage ERP X3 is our global solution for the mid-market. It is

available in over 100 countries, is supported by 290 business

partners and serves the needs of 4,800 customers and

228,000 users.

Sage ERP X3 version 7, which we released earlier this year,

is a major upgrade and a significant technology evolution.

Version 7 is designed with mobility and web native solutions

at its core and sets the foundation for the next generation

of ERP.

We also announced the planned launch of Sage ERP X3

Online this year, which preserves the customisation benefits

that are important to mid-market customers whilst letting

them move their core system to the cloud.


Progress this yearSage One

Sage One is now commercially available in 10 countries, including recent releases in Canada, Portugal,

Switzerland and South Africa. This year we launched the new Sage One Accounts Extra edition in the

UK and released Sage One Accountant Edition in the US.

Several existing products have also been brought into the Sage One family, including: PastelMyBusiness

Online, PastelMyPayroll Online and VIP Payroll Online in South Africa; E-paie in France; and Einfachlohn

in Germany.

The number of paying subscriptions increased almost 150% in 12 months to 86,000, up from 35,000* at

the end of September 2013. In the UKI, where Sage One is currently most established, we were adding

paying subscriptions at an average rate of 2,300 a month in the second half of the year.

The increase in subscriptions was led by a strong performance in the UKI. The uptake of Sage One in

Continental Europe is nascent, which is consistent with the level of adoption of SaaS accounting in the

wider market. We are seeing promising early traction with Sage One in Canada following this year’s

release, but the level of progress in the US is slow and remains below our expectations.

Hybrid cloud for SMBs

The roll-out of our hybrid cloud solutions for SMBs, which are building on our existing flagship SMB

products in our major markets, is now complete with the commercial launch of Sage 100 Online in France

and Sage 300 Online in the US.

Whilst SME adoption of our hybrid cloud products is emerging, the number of paying subscriptions

has doubled in the year to 1,500, with Sage Murano in Spain performing particularly well.

Sage ERP X3

Sage ERP X3 version 7 was launched in May 2014 to positive reviews. We also announced Sage ERP X3

Online, which is a pure cloud solution for our mid-market customers that is due for commercial launch

in 2015.

Sage ERP X3 organic revenue grew 7% in the year, which is below our stated ambition to deliver double-

digit organic revenue growth. However, Sage ERP X3 continues to perform well outside of France, where

it delivered organic revenue growth of 20%.

Connected on-premise

Sage 50 2015 launched in the UK in August 2014 with a completely re-designed user interface. Alongside

Sage Contaplus in Spain, it has also been significantly modernised so that we can deliver a cloud-enriched

experience to our on-premise customers. Sage Drive, which will let customers share data and collaborate

in the cloud, went live in October 2014 in Spain and in December 2014 in the UK.

Connected services

Sage 50 Payroll in the UK saw a 400% increase in subscription revenue following the release of

a connected service that helps affected customers deal with new auto-enrolment pension legislation.

We have also launched a range of new smartphone apps, including a companion app for Sage One

that lets customers raise invoices on their smartphone.

The number of integrated payments customers also increased 14% to 15,800 during the year, although

the performance in North America, in particular, was below our expectations.

* Following the incorporation of several existing SaaS products into the Sage One portfolio during the year, prior year Sage One paying subscriptions have been restated on a like-for-like basis. Without the restatement, Sage One paying subscriptions at 30 September 2014 were 52,600 (2013: 22,400).



– Adoption of Sage One

– Adoption of hybrid cloud

– Sage ERP X3 organicrevenue growth

– Integration of payments

Our strategy continuedCapturing the technology opportunity continued


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Focusing our business captures a number of initiatives

that we’ve undertaken:

– Changing the way we work

– Streamlining our product portfolio and reallocating

investment to our best growth opportunities

– Transforming our brand

Changing the way we work

Although we’re executing on our strategic priorities

locally, we have defined them globally. We believe it is

the only way to create the right conditions for success:

– It ensures all of our people are pursuing the same

goals in a consistent way

– It means we make products that can be deployed

globally whilst maintaining our focus on meeting

the local needs of our customers

– It encourages closer working practices and

knowledge sharing across the organisation

Streamlining our portfolio and reallocating investment

We categorise our core products as Invest, Harvest

and Sunset based on their potential to create value,

whether that is through higher revenue growth or

profitability. We use this categorisation to determine

our investment priorities.

Invest products represent our best current and future

growth opportunities and receive more research

and development (“R&D”) and sales and marketing

(“S&M”) investment.

Harvest products are mature and deliver higher margins,

and we continue to invest in them appropriately to

maintain their market positions.

Sunset products have lower growth potential and, in

most cases, the needs they serve are better met by

another product within our portfolio. These high margin

products are undergoing a sunset process where

associated investment is being redirected towards

our Invest product portfolio.

This rigorous framework for managing the portfolio

gives us clearer focus on the strategic drivers that will

influence growth in both the near and medium term.

Global Brand Campaign 2014

In January we launched our first global brand campaign across billboards,

print, radio and digital media. The campaign focused on how Sage can

put customers in control of their business so they can look forward with

confidence. The campaign has been a key milestone in delivering our strategy

and connecting the market with a single brand. We measured prospective

customers’ awareness of Sage and have seen an increase in global brand

awareness and familiarity with our product offerings.

Focusing our businessWorking with greater focus has led to a change in how we allocate resources and in the way we collaborate with each other across the globe.

Split of total R&D and S&M

spend by I:H:S category

Invest 59%

Harvest 37%

Sunset 4%

Change in % spend

on Invest products*

Research and development

Sales and marketing

2013 2014 2013 2014

52 52

62

57

* Graph is on an organic basis, excluding acquisitions, disposals and products held for sale. Reported 2013 Invest percentages were: R&D – 50%; S&M – 49%.


Progress this yearInvestment reallocation

The reallocation of R&D and S&M spend to our best opportunities has continued during the year alongside

an overall organic increase in expenditure in these areas of almost 4%.

62% of total R&D spend (2013: 52%) and 57% (2013: 52%) of total S&M spend is now directed towards

products categorised as Invest opportunities. This has resulted in an overall increase in absolute R&D and

S&M spend on Invest products of 17%.

Spend on the other categories has fallen as a result, with 35% and 3% of R&D spend, and 39% and 4%

of S&M spend, being directed to Harvest and Sunset products respectively (2013: R&D – 41% and 7%;

S&M – 43% and 5%).

Transforming our brand

Much of Sage’s growth over the last 30 years has been through acquisition as our business has expanded

and strengthened its presence across a number of global markets.

However, this resulted in a highly-fragmented brand identity, where customers could relate to local product

names but sometimes had never heard of Sage.

A single brand

Our brand teams are changing this to strengthen Sage’s global presence and to make better use of

our differentiated market position as the strongest supporter of SME businesses. One of the biggest

initiatives we’ve undertaken to help us do this was our first global brand campaign that was launched

in January 2014.

The campaign incorporated an array of radio, digital, print and billboard advertising across Europe, North

America, South Africa and Australia that raised our profile, and there are plans in place to follow up with

a second campaign in due course.

Sage Summit 2014

In North America, our annual Sage Summit convention, which was held in Las Vegas this year, was the

biggest ever with over 5,000 customers and partners in attendance. The focus of the event was to be the

centre of a North America-wide conversation about the success of SMEs, the challenges they face and

how Sage can help them to grow and thrive.

Attendees were able to hear from successful business people including: Biz Stone, the co-founder of

Twitter; Magic Johnson, the former LA Lakers basketball player and now highly-successful businessman;

and Jessica Alba, the famous Hollywood actress who has started her own business.



– R&D reallocation – S&M reallocation

Our strategy continuedFocusing our business continued


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Investment and R&D

Our approach to investing in our products and services

is explained in the Focusing our business section on

pages 33 and 34.

Ordinary dividend policy

Our policy is to grow the ordinary dividend progressively, and

this year the full year dividend grew 7% to 12.12p per share.

Maintaining the leverage target

We target a net debt leverage level of around 1x our EBITDA,

with flexibility to move higher if acquisition opportunities

present themselves. In maintaining our core leverage, we

adopt a holistic approach to capital management that

includes growing the ordinary dividend and, where

appropriate, returning surplus capital to shareholders.

Capital returns

Share repurchase decisions are made against strict price,

volume and returns criteria that are agreed by the Board and

regularly reviewed. Share repurchasing gives us the flexibility

to manage the leverage target when there is an absence of

appropriate acquisition opportunities.

Where the absence of such opportunities leads to a

significant net debt leverage target shortfall we may also

consider larger returns of capital to shareholders as we did

in June 2013, where we paid a £199m special dividend.

Our acquisition strategy

Our approach to acquisitions is disciplined and we typically

require opportunities to:

– Demonstrate earnings accretion in year one

– Deliver a return in excess of our risk-adjusted cost

of capital in the medium term

We are focused on acquisition opportunities that fall into

three broad areas:

– Technology bolt-ons that offer us opportunities to

cross-sell into our installed base

– Businesses in existing geographies that strengthen the

core offering

– Businesses in new geographies where we are prepared

to wait longer to achieve target returns in exchange for

access to higher-growth markets

Acquisitions this year

This year we announced two material acquisitions:

Exact Software Deutschland GmbH ("Exact Lohn")

Exact Lohn is a German payroll business previously owned

by Exact Holding N.V. This acquisition is transformative for

Sage’s payroll business in Germany.

PAI Group, Inc. ("PayChoice")

PayChoice is a provider of payroll and HR services for

SMBs in the US. The acquisition accelerates Sage’s move

to the cloud in this market by leveraging PayChoice’s SaaS

platform for self-service and outsourced payroll.

For more information on these and other acquisition-related

developments, turn to note 15 in the Financial statements

starting on page 150.

Rigorous resource


Investment

and R&D

Targeted

acquisitions

Sustainable

and progressive

dividends

Capital returns

Selected

disposals

Through-cycle

gearing

Rigorous resource and capital allocationWith our consistent, strong cash flows we have the financial strength to support growth.



– Net debt to EBITDA ratio – Interest cover

Returns to

shareholders

Ordinary dividends

Share repurchases

Special dividends

2013 2014

122

251

199

126

91

Our main strategic priority remains an acceleration of growth, both organically and

through targeted acquisitions, and we will invest in support of that aim. This will enable

us to support growth of the ordinary dividend, with any surplus capital being returned

to shareholders from time to time.


Key performance indicators

Measuring our progress

The measurement of progress in delivering our strategy is important and we track a range of KPIs to measure performance.

Organic annualised value of the software subscriber base

Adoption of Sage One Adoption of hybrid cloud Sage ERP X3 organic revenue growth

£220m2013: £170m

86,0002013: 35,000

1,5002013: 750

7%2013: 12%

Description

The amount of organic software

subscription revenue recorded

in the last month of the year

multiplied by 12.

Software subscription is defined as

any contract where customers may

no longer use their software

product if they cease to pay. The

prior year KPI has been restated

to include mandatory maintenance

and support arrangements where

customers may no longer use

their software product if they cease

to pay. Payments contracts and

non-software subscription

contracts are excluded from

this measure.

The number of paying

subscriptions at the end of

the year for our portfolio of

Sage One products.

Following the incorporation of

several existing SaaS products

into the Sage One portfolio

during the year, prior year Sage

One paying subscriptions have

been restated on a like-for-like

basis. Without the restatement,


at 30 September 2014 were

52,600 (2013: 22,400).

The number of paying

subscriptions at the end of the

year for hybrid cloud products.

The percentage increase in

organic revenue derived from

Sage ERP X3 in the year

compared to the prior year.

Performance

Software subscription was

the primary driver of organic

revenue growth this year, which

is reflected in the 29% increase

in this KPI. We saw strong

subscription traction in France

and the UKI, in particular,

where legislative and technology

catalysts encouraged

customers to move to a

subscription relationship.


have increased by almost 150%

in 12 months. The UKI continues

to be the primary driver of this

growth. Adoption in Continental

Europe is nascent, reflecting the

rate of SaaS adoption more widely

in that market. Whilst we are

seeing promising early adoption

in Canada following Sage One’s

release there this year, our

progress in the US remains slow

and is below our expectations.

SMB adoption of hybrid cloud

is emerging, but we have seen

good progress across our major

markets this year and have

doubled the number of paying

subscriptions in 12 months.

We saw the greatest traction

in Spain, where paying

subscriptions increased to

almost 450.

Organic growth of 7% is below

our stated ambition for Sage

ERP X3 of double-digit organic

revenue growth. However,

Sage ERP X3 continues to

perform well outside of France,

where revenue has grown by

20%. This year, we launched

Sage ERP X3 version 7, and

we also announced the planned

launch of Sage ERP X3 Online.



Strategic KPIs

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Integration of payments

R&D* and S&M** spend by category

Net debt to EBITDA ratio

Interest cover

15,8002013: 13,800

R&D reallocation S&M reallocation

62:35:03 57:39:042013: 52:41:07 2013: 52:43:05

1.1:12013: 1.0:1

17x2013: 24x

The number of customers at

the end of the year who are

using a Sage core accounting

system, a Sage payments

solution, and the integration

of the two is provided or

owned by Sage.

Resource optimisation is captured by

reporting on the resource allocation in

our business.

R&D and S&M spend in the year is

divided into three categories of product –

Invest:Harvest:Sunset.

Our strategy is to focus our investment

towards the Invest products in our portfolio.

This KPI is on an organic basis. Previously

reported allocations for 2013 were:

R&D – 50:43:07; S&M – 49:46:05.

The net value of cash less

borrowings expressed as a

multiple of rolling 12-month

EBITDA. EBITDA is defined

as earnings before interest,

tax, depreciation, amortisation

of acquired intangible assets,

acquisition-related items,

fair value adjustments

and non-recurring items

that management judge to

be one-off or non-operational.

Statutory operating profit

for the year excluding

non-recurring items that

management judge to be

one-off or non-operational,

expressed as a multiple

of finance costs excluding

imputed interest for the

same period.

The number of integrated

payments customers

increased 14% this year,

although our performance

in North America, in particular,

was below our expectations.

We continue to focus on reallocation of

R&D and S&M investment towards our best

opportunities for higher growth and profitability.

This year, overall expenditure across these

categories has increased by 4% organically,

with a 17% increase on products classified

as Invest.

During the year we

returned £217m of cash

to shareholders through

ordinary dividends and

share repurchases, and

paid out £65m in respect of

acquisitions and the purchase

of the remaining 25% of

Folhamatic in Brazil. Net

debt stood at £437m at

30 September 2014.

The fall in interest cover is due

to the annualisation of interest

relating to the 2013 US private

placement, which was only in

issue for approximately four

months of last year. In

addition, we have maintained

a higher level of net debt on

average throughout this year,

which has increased our

interest costs.


Rigorous resource and capital allocation

* Research and development** Sales and marketing


Key performance indicators continued

We monitor our financial performance against a number of different benchmarks. These are set in agreement with the Board and used to evaluate progress against our strategy.

Organic revenue growth Underlying operating profit margin Underlying cash conversion

5% 27.5% 107%

Description

Organic revenue neutralises the impact

of foreign exchange in prior year figures

and excludes the contribution of current

and prior year acquisitions, disposals and

products held for sale.

For a reconciliation of organic revenue

to statutory revenue, turn to page 45.

Underlying operating profit excludes:

– Recurring items including amortisation

of acquired intangible assets, acquisition-

related items, and fair value adjustments

– Non-recurring items that management

judge to be one-off or non-operational

The impact of foreign exchange is neutralised

in prior year figures.

Elsewhere in the Annual Report & Accounts we

refer to organic operating profit and margin, as

this measure better reflects like-for-like business

performance year-on-year. Underlying margin

is included here for consistency with previous

reports and to provide a five year comparator.

Organic operating profit is underlying operating

profit further adjusted to exclude the contribution

of current and prior year acquisitions, disposals

and products held for sale.

For a reconciliation of underlying margin to

organic margin, turn to page 45.

Underlying cash conversion is calculated

as cash flows from operating activities,

adjusted for cash acquisition-related

items and non-recurring cash items of

£2m (2013: £2m), divided by underlying

operating profit.

Going forward, underlying cash

conversion will be calculated as

above but also after operating capital

expenditure. Current year underlying

cash conversion is 99% on this basis.

Performance

5% organic revenue growth represents an

important milestone in demonstrating that we

are on track to achieve our organic revenue

growth target in 2015 of 6%. The increase

in growth this year was primarily due to an

acceleration in the rate of recurring revenue

growth to 7%, up from 6% last year. This was

driven by good progress with our software

subscription initiatives.

Underlying profit margin of 27.5% reflects a

reduction in overheads that previously supported

non-core products that we disposed of last year,

alongside improved profitability as a result of the

increase in organic revenue, and disciplined cost

management. We remain committed to delivering

a 28% margin in 2015 in line with our stated

financial targets.

Underlying cash conversion has decreased

by 5% this year as a result of foreign

exchange movements and an increase

in working capital.

Financial KPIs

4%

2012

2%

20112011

4%

5%

201420132010

Flat

112%

2012

106%

2011

111%117%

107%

201420132010

27.3%

2012

27.3%

2011

27.4%25.5%

27.5%

201420132010

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Underlying EPS growth Recurring contract renewal rate

8% 83%

Underlying basic EPS is defined as underlying

profit after tax divided by the weighted average

number of ordinary shares in issue during the

year, excluding those held as treasury shares.

Underlying profit after tax is defined as profit

attributable to owners of the parent excluding:

– Recurring items including amortisation

of acquired intangible assets, acquisition-

related items, fair value adjustments and

imputed interest

– Non-recurring items that management judge

to be one-off or non-operational

All of these adjustments are net of tax. The

impact of foreign exchange is neutralised in

prior year figures.

For a reconciliation of underlying basic EPS

to statutory basic EPS, turn to page 46.

The number of contracts successfully renewed in the year as a percentage

of those that were due for renewal.

Underlying EPS growth primarily reflects a

decrease in the weighted average share base

due to the repurchase of shares during the year,

and a reduction in the effective rate of tax.

This offsets higher finance costs resulting from

our move to a 1x net debt to EBITDA ratio and a

decrease in underlying operating profit following

the sale of non-core products last year.

Our recurring contract renewal rate has been consistently high at over

80% for a number of years, which is testament to the value customers place

on support.

Software subscription relationships have higher rates of renewal compared to

support of around 90%. Our subscription success this year has driven a shift

in the mix towards these higher quality relationships, which has led to an

increase in the overall renewal rate of 1%.

Customer KPI

12%

2012

-2%

2011

14%

16%

8%

201420132010

82%

2012

81%

2011

81%81% 83%

201420132010


Principal risks and uncertainties

Balancing risks and rewards

Through our risk management processes, we manage risks as we execute on our strategic and business plans.

The Board

The Board has overall responsibility for risk management, the setting

of risk appetite and the implementation of the risk management policy.

The Board reviews the output from the Group Risk Report with specific

focus on the top three risks.

The Audit Committee

The Audit Committee reviews and challenges the Group Risk Report,

which is then submitted to the Board. It reviews all risks at each meeting

and ensures adequate assurance is obtained over the risks that are

identified. The Audit Committee is also responsible for the independent

review and challenge of the adequacy and effectiveness of the risk

management approach.

Executive Committee

The Executive Committee is responsible for the identification, reporting

and ongoing management of risks and for the stewardship of the

risk management approach. The Executive Committee identifies and

assesses the key strategic risks to the Group on an annual basis. The

outputs of the assessment are sent to the country CEOs for inclusion in

their local risk assessment exercises. In addition, the Group Risk Report is

reviewed and agreed by the Executive Committee prior to submission to

the Audit Committee and Board.

Country CEOs

Country CEOs are responsible for the identification, reporting and

ongoing management of risks in their respective countries. Country

CEOs facilitate local risk assessment exercises to review the key strategic

risks and to identify top local risks within their country. The outputs of

these assessment exercises are sent to regional management and

the Group Risk and Assurance Director for review and challenge.

Regional management

Regional management are responsible for the reporting, challenge and

ongoing management of risks in their respective regions. Regional

management, with support from the Group Risk and Assurance Director,

review and challenge the risk information from the countries and agree

the regional response to the key strategic risks and the top regional risks.

Group Risk and Assurance Director

The Group Risk and Assurance Director is responsible for the facilitation

and implementation of the risk management approach throughout Sage.

The Group Risk and Assurance Director consolidates the regional risk

reports and creates a Group Risk Report containing the responses to the

key strategic risks and the top local risks for Sage as a whole. The Group

Risk Report is sent to the Executive Committee for review prior to

submission to the Audit Committee and Board.

Our risks

Risks can materialise and impact on both the achievement of business strategy and the successful running of our business. A key element

in achieving our strategy and maintaining services to customers is the management of these risks. Our risk management strategy is therefore

to support the successful running of the business by identifying and managing risks to an acceptable level and delivering assurances on this.

How we identify risk

Our risk identification processes seek to identify risks from both a top down strategic perspective and a bottom up local operating

company perspective.

Audit Committee

Group Risk and Assurance Director

Country CEOsRegional management

Executive Committee

Group Board

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Analyse

Mitig

ate Identify

Evaluate

Risk management process

Ultimate risk and is unacceptable. Risk treatment is required as soon as possible.

Significant risk and is unacceptable. Risk treatment is required within reasonable timeframes.

Moderate risk and is acceptable. However, risk treatment may be considered in the longer term.

Limited risk and is acceptable. No further action is required.

How we manage risk

Our risk management process has been built to identify,

evaluate, analyse and mitigate significant risks to the

achievement of our business objectives.

Our risk appetite

We use risk appetite (as shown below) to ensure the appropriate focus

is placed on the correct risks. Identified risks are scored on a gross

and a net risk basis using our predefined scoring matrix. Risks are then

prioritised for mitigation based on both of these scores and using our risk

appetite. The top risks, currently three, are reviewed by the Board on an

annual basis, with prioritised risks below the top three being reviewed by

the Audit Committee.

Turn over the page to see our principal risks and associated mitigations.

Minor Moderate Major Critical

Unlikely

Possible

Likely

Probable

This year we have aligned our risk reporting with our risk

management process in order to give a more holistic view

of our risk landscape.

Identify the principal risk

Evaluate the level of risk

Analyse the potential impact

Mitigate to lower risk exposure

Lik

elih

ood

Impact


Principal risks and uncertainties continued

Identify Evaluate Analyse Mitigate

Strategic risks

Business change

We do not successfully

change our business,

especially in relation to

technology initiatives, business

model, ecosystem and

organisational design to

support the change

– We do not keep up with market

expectations and competitor activities

– Negative impact on future revenue and

damage to future growth potential

– Loss of existing customers and inability

to attract new customers

– Negative reputational impact

– We are slow to identify and respond

to change

– Strategic opportunities are regularly

reviewed by the Group Board

– Change and strategic projects are identified

and their delivery monitored by the Executive

Committee and Group Project Management

Office ("PMO")

– Technology Advisory Group review of key

technology initiatives on a regular basis

– Product development needs identified

via customer input and external research

– Detailed subscription and pricing initiatives

planned and being delivered

Change management

With new business priorities

and changes in senior

personnel, there is a risk

associated with the change

management impact

on people, processes

and systems

– Loss of talent and resources key

to strategic delivery

– Inability to operate effectively and

maintain a competitive edge

– Loss of sensitive information

and knowledge

– Change management programme,

including talent reviews, system requirements

reviews and programme management

– Key man dependency and succession

planning processes

Financial risks

Processes and systems

Our processes and systems

are not fit for purpose and/or

do not provide data in a

consistent or appropriate

format. This risk is especially

relevant as we seek to change

the business (see business

change risk)

– Inaccurate reporting of financial

and non-financial information,

leading to damage to reputation

– Business decisions made on the

basis of inaccurate information

– Reduced understanding of

existing customers

– Negative impact on the speed

and the ability to compare and/or

consolidate information

– Increased data risk exposure

– Financial reporting review and external

audit procedures

– Financial data verification

– Internal audit process reviews, with areas

for improvement identified and remediation

plans put in place

– System reviews and transformation projects

Compliance risks

Regulatory and

compliance failure

We suffer a significant

compliance or

regulatory failure


– Data breach, corruption or loss leading

to potential regulatory penalties or

financial loss

– Impact on current and future revenues

and damage to future growth potential



– Group-wide compliance programme which

seeks to ensure that all local, national and

international regulatory and compliance

requirements are identified and complied

with

– Key examples of compliance requirements

include data protection, PCI compliance and

the Bribery Act

Source code and

intellectual property

We do not appropriately

protect our source code

and intellectual property

– Unauthorised copies of our software

are made, leading to loss of revenue

and/or customers


– Impact on current and future revenues

and damage to future growth potential

– Local registration of trademarks

– Use of third parties and security tools and

techniques to securely store and protect

source code and intellectual property

– Access controls and monitoring systems

to police unauthorised use of products

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Identify Evaluate Analyse Mitigate

Operational risks

Loss of data

Accidental or malicious

loss of data (being either

our customers’ data or our

own data). This includes

the risk of cyber attack


– Data breach, corruption or loss, leading to

potential regulatory penalties or financial loss

– Negative impact on current and future

revenue and damage to growth potential

– Loss of existing customers and inability to

attract new customers

– Framework in place, but being further

developed and enhanced to control the

risks associated with the protection of data

– Ongoing monitoring of security incidents

Online solutions

The availability of live online

solutions does not meet

customer expectations

or requirements






– Detailed product and services release and

quality control procedures

– Thorough quality assurance processes

and initiatives relating to the level of service

provided to customers

– Detailed framework to control the risks

associated with the provision of online services

– Ongoing monitoring of availability of

online solutions

Skills and resources

We do not have or

cannot attract and retain

the required skills and

resources for strategic

and business delivery

– Potential to create key person dependencies

– Capacity issues and inability to focus

sufficient management attention

where required

– Inability to execute strategy and achieve

business deliverables

– Talent management, skills attraction

and recruitment processes in place

– Resource allocation processes in place

Resource allocation

We do not appropriately

allocate resources to

key priorities

– Budgeted financial performance and

KPI targets are not achieved

– Strategic initiatives are not completed

and our potential is not realised

– Detailed business planning and budget

processes to review allocation of resource

and financial results on a regular basis

Brand

Inadequate brand

awareness amongst

customers and prospects

– We do not keep up with market

expectations and competitor activity





– Inability to attract new talent


– Global brand campaign targeting customer

and prospects

– Consistency of brand messaging

Traditional products

We suffer a major

issue with a significant,

traditional, on-premise

product (bugs, meeting

customer expectations

or upgrade experiences)


– Negative impact on current and

future revenue and damage to future

growth potential



– Detailed product and services release and

quality control procedures

– Thorough quality assurance processes

and initiatives relating to the level of service

provided to customers

Key

Increase in risk

Decrease in risk

No change in risk


Financial and operating review

Group performance

The Group delivered organic revenue growth of 5%

(2013: 4%), and increased organic operating profit

margin to 27.5% (2013: 27.1%).

The strong momentum around subscription adoption

reported in the first half of the year remains the primary

driver of the increased organic growth rate for the full year.

This was supported by continued progress in up-selling

maintenance and support to existing customers, offset by

weaker performances in the mid-market in France and in

North American payments.

Organic operating profit growth reflects a reduction in

overheads that previously supported the non-core products

disposed of in March and April 2013, alongside improved

operating leverage resulting from organic growth and

disciplined cost management.

Organic figures neutralise the impact of foreign currency

fluctuations and exclude the contribution from acquisitions,

disposals and products held for sale to aid comparability.

A reconciliation of organic operating profit to the underlying

operating profit reported in 2013 is shown on page 45.

Statutory performance has been impacted by material

movements in key exchange rates during the year,

particularly in Europe, North America, South Africa and

Brazil. Statutory figures also include the contribution of

acquisitions and disposals. The current year statutory

operating profit includes a £44m goodwill impairment

relating to our Brazilian operations. The prior year statutory

operating profit included a £186m non-recurring item relating

to the disposal of non-core products.

Recurring revenue

The Group has delivered an improvement in organic recurring

revenue growth to 7% (2013: 6%), which is evidence of

strengthening momentum in subscription adoption across

the Group. This has resulted in an improved contract renewal

rate of 83% (2013: 82%). The improvement in growth was

achieved despite a slowdown in the performance of North

American payments, which was impacted by market-wide

pricing pressure.

Recurring revenue represents 73% of the Group’s total

revenue, representing a change in mix of 2%. This highlights

the success of our subscription initiatives this year in

particular, and continues a long-running strategic shift to

higher quality and less cyclical revenue that is underpinned

by our maintenance and support contract base.

SSRS revenue

Organic SSRS revenue contracted by 1% in the year

(2013: flat). Weak new licence and professional services

revenue in France has weighed on SSRS performance in

the European mid-market. The Group also faced strong

comparators as a result of legislative change in certain

markets, particularly in the UKI.

These factors were offset by an improved SSRS

performance in Spain, which is no longer contracting,

and a strong performance from Sage ERP X3 in

North America and South Africa.

Revenue

Statutory revenue contracted by 5% to £1,307m

(2013: £1,376m). The decline mainly reflects the inclusion

of £57m of revenue from disposals in the prior year, and

adverse foreign exchange movements. These factors offset

organic revenue growth in the core business.

The average exchange rates used to translate the

Consolidated income statement for the year are set

out on page 47.

Operating profit

Statutory operating profit increased to £298m (2013: £181m)

and includes a £44m goodwill impairment charge relating to

our Brazilian operations. Statutory operating profit in the prior

year included a non-recurring loss on the disposal of

non-core products of £186m.

Organic operating profit margin in the prior year excludes the

contribution from non-core products disposed in March and

April 2013. A reconciliation of the previously reported 2013

underlying margin of 27.3% to the 2013 organic margin of

27.1% is shown on page 45.

Organic operating profit increased by 7% to £360m

(2013: £337m), and organic operating profit margin

increased to 27.5% (2013: 27.1%). The increase is primarily

due to a reduction in overheads that previously supported

the non-core products. Operating profit margin has also

benefited from an improvement in operating leverage as

a result of revenue growth, and from a disciplined approach

to managing the cost base.

Research and development pexpenditure

Total R&D expenditure was £131m, which represents 10%

of total organic revenue. During the year, R&D expenditure

on Invest products increased 25% organically as resources

have been reallocated from Sunset and Harvest products.

All R&D expenditure incurred this year was expensed.

Momentum with revenue growth, subscription growth and cloud adoption.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Revenue Statutory Organic

2014 2013 Change 2014 2013 Change

Europe £750m £777m -3% £750m £724m +4%

Americas £412m £448m -8% £412m £393m +5%

AAMEA £144m £151m -4% £144m £129m +12%

Group £1,307m £1,376m -5% £1,306m £1,246m +5%

Operating profit

Statutory Organic

2014 2013 Change 2014 2013 Change

Europe £206m £156m +33% £215m £204m +6%

Americas £53m (£14m) n/a £106m £98m +8%

AAMEA £39m £39m +1% £39m £35m +11%

Group £298m £181m +65% £360m £337m +7%

Margin 22.8% 13.1% 27.5% 27.1%

Revenue mix Recurring revenue SSRS revenue

Organic 2014 2013 Change 2014 2013 Change

Europe £536m £501m +7% £215m £224m -4%

Americas £335m £317m +6% £77m £76m +2%

AAMEA £81m £71m +14% £63m £58m +10%

Group £951m £889m +7% £355m £357m -1%

% of total organic revenue 73% 71% 27% 29%

Organic to statutory reconciliations 2014 2013

RevenueOperating

profit Margin RevenueOperating

profit Margin

Organic £1,306m £360m 27.5% £1,246m £337m 27.1%

Non-organic adjustments1 £1m – £57m £18m

Underlying £1,307m £360m 27.5% £1,303m £355m 27.2%

Impact of foreign exchange – – £73m £21m

Underlying (as reported) £1,307m £360m 27.5% £1,376m £376m 27.3%

Recurring items2 – (£16m) – (£5m)

Non-recurring items3 – (£46m) – (£190m)

Statutory £1,307m £298m 22.8% £1,376m £181m 13.1%

1 Non-organic adjustments comprise contributions from acquisitions, disposals and products held for sale.

2 Recurring items comprise amortisation of acquired intangible assets, acquisition-related items and fair value adjustments.

3 Non-recurring items comprise items that management judge to be one-off or non-operational.


Financial and operating review continued

Earnings per share

Underlying basic earnings per share increased by 8%

to 22.69p (2013: 20.98p) due to a lower effective tax rate

and a reduction in the average number of shares in issue to

1,094.4m (2013: 1,168.8m). The reduction was due to share

repurchases and inclusion of the full impact of the share

consolidation effected in June 2013 into the average share

base. These factors were partly offset by an increase in net

interest cost.

Basic earnings per share (“EPS”) reconciliation2014

pence2013

pence

Underlying basic EPS 22.69 20.98

Impact of foreign exchange – 1.29

Underlying basic EPS (as reported) 22.69 22.27

Recurring items (1.44) (17.59)

Non-recurring items (4.18) (0.71)

Statutory basic EPS 17.07 3.97

Statutory basic earnings per share increased to 17.07p

(2013: 3.97p), which reflects the factors set out above,

the inclusion of the non-recurring loss on disposal of

non-core products in the prior year and the £44m

impairment charge recorded this year.

Net finance cost

Net finance costs increased to £21m (2013: £16m). This was

principally due to the annualisation of interest on gross debt

following the raising of US$400m of US private placement

(“USPP”) loan notes in May 2013. The average interest rate

on borrowings during the year was broadly in line with the

prior year at 3.75% (2013: 3.78%).

Taxation

The statutory income tax expense was £90m (2013: £117m).

The effective tax rate on statutory profit before tax was 32%

(2013: 71%). The effective tax rate on underlying profit before

tax was 27% (2013: 28%). This is in excess of the standard

rate of UK tax due to the higher tax rates applicable in

the other jurisdictions in which we operate. The prior year

expense includes a non-recurring tax charge of £17m on

the disposal of the non-core products.

The income tax charge and the total tax paid in the year are

underpinned by Sage’s tax policy, which is aligned with the

overall goals of the business including Sage’s vision, strategy,

code of ethics and guiding principles.

We seek to manage our tax affairs in a responsible and

transparent manner, to comply with relevant legislation

and with due regard to our reputation. Our approach is in

line with the principles issued by the Confederation of British

Industry (“CBI”) in May 2013. Sage’s tax policy has been

agreed by the Board, with progress being monitored by the

Group Audit Committee. The policy has been shared with

the UK tax authorities.

Cash flow and net debtCash flow 2014 2013

Underlying operating profit £360m £376m

Non-recurring cash items (£2m) (£2m)

Depreciation/amortisation/profit

on disposal £28m £30m

Share-based payments £8m £3m

Working capital movements (£1m) £11m

Exchange rate and other movements (£11m) (£1m)

Statutory cash flow from

operating activities £382m £417m

Net interest (£19m) (£11m)

Tax paid (£107m) (£119m)

Net capital expenditure (£27m) (£19m)

Free cash flow £229m £269m

Statutory cash flow from operating

activities £382m £417m

Non-recurring cash items £2m £2m

Underlying cash flow from

operating activities £384m £419m

Underlying cash conversion1 107% 112%

1 Underlying cash flow from operating activities divided by underlying operating profit.

Going forward, underlying cash conversion will be calculated

using underlying cash from operating activities after operating

capital expenditure. Underlying cash conversion this year is

99% on this basis.

The cash outflow for acquisitions completed in the year

and the purchase of the remaining 25% of Folhamatic

was £65m and there were no disposal proceeds.

A total of £217m (2013: £572m) was returned to

shareholders through ordinary dividends paid of

£126m (2013: £122m) and shares repurchases of

£91m (2013: £251m). In the prior year, a special

dividend was paid of £199m that did not reoccur this

year. Net debt stood at £437m at 30 September 2014

(30 September 2013: £384m), which is equivalent to

1.1x rolling 12-month EBITDA.

Treasury management

The Group continues to be able to borrow at competitive

rates and currently deems this to be the most effective

means of raising finance. During the year, the Group’s

syndicated bank multi-currency revolving credit facility

was renewed to June 2019, the facility level increased

to £510m (US$551m and €218m tranches) (2013: £346m,

US$271m and €214m tranches). At 30 September 2014,

£111m (2013: £10m) of these facilities were drawn, with

the increase primarily due to the completion of an acquisition

in Germany close to the year-end and the purchase of the

remaining 25% of Folhamatic in Brazil.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Total USPP loan notes at 30 September 2014 were

£432m (US$700m) (2013: £432m, US$700m).

Approximately £123m (US$200m) of USPP borrowings

are due for repayment in March 2015. After the year-end,

the Group has, subject to documentation, priced and

agreed investor allocations for the refinancing of this debt

in the USPP market. The agreed refinancing is US$200m

(£123m) at 3.73% fixed until 2025, €55m (£43m) at 1.89%

fixed until 2022 and €30m (£23m) at 2.07% fixed until 2023.

Acquisitions

On 15 September 2014, the Group acquired 100% of

the share capital of Exact Software Deutschland GmbH

(“Exact Lohn”), a provider of payroll services and software,

for a cash consideration of €16m (£13m). As a result of the

acquisition the Group expects to become one of the leading

providers of payroll software solutions in Germany.

The put and call arrangement to acquire the remaining

25% non-controlling interest in Folhamatic in Brazil was

settled during the year for consideration of £50m, increasing

the Group’s ownership to 100%.

Foreign exchange

The Group does not hedge foreign currency profit and

loss translation exposures and the statutory results are

therefore impacted by movements in exchange rates.

The average rates used to translate the Consolidated

income statement and to neutralise foreign exchange

in prior year figures are as follows:

Average exchange rates (equal to GBP1) 2014 2013 Change

Euro (€) 1.23 1.19 +3%

US Dollar ($) 1.66 1.56 +6%

South African Rand (ZAR) 17.65 14.60 +21%

Australian Dollar (A$) 1.81 1.58 +15%

Brazilian Real (R$) 3.81 3.30 +15%

Capital structure and dividend

With consistent and strong cash flows, the Group retains

considerable financial flexibility going forward. The Board’s

main strategic priority remains an acceleration of growth,

both organically and through targeted acquisitions, and

investment will support that aim. This growth underpins the

Board’s sustainable progressive dividend policy, with surplus

capital being returned to shareholders from time to time.

Consistent with this policy, the Board is proposing a 7%

increase in the total ordinary dividend per share for the year

to 12.12p per share (2013: 11.32p per share). The ordinary

dividend for the year is covered 1.9x by underlying earnings

per share.

Archer Capital

On 14 November 2011, the Group reported a claim for

damages made by Archer Capital (“Archer”) following the

termination of discussions between the Group and Archer

relating to the potential purchase of MYOB. The Group

strongly rejects the claim, which is alleged to be in the region

of £101m (A$188m). The claim was heard by the Court in

late 2013 and judgment is pending.

Events after the reporting date

On 30 September 2014, the Group appointed Citigroup

Global Markets Limited to manage an irrevocable buyback

programme during the close period that commenced on

1 October 2014 and ran up to 3 December 2014.

On 16 October 2014, the Group acquired PAI Group,

Inc. (“PayChoice”), a provider of payroll and HR services

for small and medium sized businesses in the US, for

US$158m (£97m) in cash. The acquisition strengthens

Sage’s position in the large and growing US payroll market.

On 5 November 2014, Stephen Kelly joined the Board

as Chief Executive Officer.

Steve Hare

Chief Financial Officer


EuropeOrganic revenue growth 2014 2013

France +3% 0%

UKI +5% +5%

Spain +1% -2%

Germany +3% +1%

Sage Pay +7% +25%

Rest of Europe +3% +8%

Europe +4% +2%

Revenue in Europe grew organically by 4%, with organic recurring

revenue up 7% (2013: 5%) and organic SSRS revenue contracting

by 4% (2013: 2% contraction). Software subscription revenue growth

of 31% is a highlight, with product feature innovation, new tiered pricing

strategies and legislative change acting as subscription catalysts. 75%

of recurring revenue growth came through subscription across both the

SSB and SMB segments, driven by key product initiatives that included

Sage Ciel Flex, Sage 100 i7 and Sage 50 Payroll.

SSRS contraction reflects some substitution effect resulting from

subscription growth this year, which continues the longer-term shift

to higher quality recurring revenue streams. There was also SSRS

contraction in the mid-market that mainly affected France, driven by

a weak new licence performance and a change in sales mix. France

contributes almost 50% of total European mid-market revenue.

France – strong subscription momentum offsets mid-market

weakness

In France, organic revenue grew by 3%, with growth excluding the

mid-market of 4%. Strong subscription momentum remained the

primary driver, with over 40% of France’s recurring revenue base

comprised of software subscription revenue that grew 24% in the year.

Success continues to centre on the Sage 100 i7 upgrade programme,

which is now available across both accounts and payroll, and the tiered

subscription-only Sage Ciel Flex offering. Sage Ciel Flex has been

particularly successful in offsetting a declining performance of the legacy

Ciel product in the retail channel. These initiatives highlight the attraction

of subscription to both SMB and SSB customers respectively.

UKI – value-adding subscription catalysts drives growth

UKI revenue has grown organically by 5%. Subscription is taking hold

in the UKI with growth of 30% in the year, with Sage 50 Payroll in the

SSB segment and Sage 200 in the SMB segment behind this strong

performance. Subscription revenue now represents almost 25% of total

UKI recurring revenue.

Sage One also delivered strong growth in paying subscriptions, which

grew from over 21,000 to 47,000. Whilst Sage One is not yet a material

constituent part of the UKI revenue base, it is an important product in

driving market share growth in the SSB segment.

These good performances were partially offset by a decline in SSRS

revenue, which was boosted last year by the Real-Time Information

(“RTI”) legislative change initiative.

Financial and operating review continued

Regional performance

Spain – new pricing strategies and up-selling drive return to growth

Revenue in Spain grew 1% organically after several consecutive reporting

periods of contraction. The recovery was led by a return to SSRS growth,

which contracted by 7% last year alongside modest contraction in

recurring revenue. Sage Murano and Sage Despachos upgrade initiatives

were the primary drivers of this improvement in the SMB and Accountants

segments respectively.

Spain’s return to growth is the result of positive and successful

management action in an economic environment that is still uncertain

despite some signs of improvement. We are now seeing better growth

rates for Sage Contaplus, our flagship SSB product in Spain. This follows

the introduction of new, simplified pricing tiers and software and support

bundles, which have improved renewal rates and encouraged customers

to move to higher value plans.

Germany – improved recurring revenue growth supports growth

In Germany, the rate of organic growth increased to 3%. SSRS

contraction slowed to 2% compared to the prior year contraction of

4%, whilst recurring revenue growth increased to 7% from 5% last year,

reflecting focus on premium support up-selling across several SSB and

SMB products including Sage Office Line.

Sage Pay – growth rate slows after one-off price increase supported

prior year growth

Sage Pay delivered organic revenue growth of 7%. Growth of 25% in the

prior year was primarily due to a price increase made in the second half

of 2012 that is now fully represented in the comparator. The payments

landscape in the UK is highly competitive and this has impacted the rate

of new customer acquisition. Progress around the cross-sell of payments

into the accounting installed base has also been below expectation but

remains an opportunity for 2015.

Rest of Europe

Organic revenue in Portugal grew by 1% (2013: 17%), with prior year

growth largely due to a non-recurring legislative catalyst. Whilst current

year SSRS revenue has therefore contracted by 21% against a strong

comparator, recurring revenue has grown by 19% through focus on

support contract penetration and renewals as customers look to remain

legislatively compliant.

In Switzerland, revenue grew 3% organically (2013: 3%), whilst organic

revenue grew 5% in Poland (2013: 7%).


Organic operating profit in Europe increased to £215m (2013: £204m),

representing a margin of 28.6% (2013: 28.1%), primarily as a result of

revenue growth improving operating leverage. The Group continues

to invest in Europe in support of growth, particularly across R&D, S&M

and customer support, whilst reducing the overhead base that supported

non-core products that were disposed of last year.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


AmericasOrganic revenue growth 2014 2013

Sage Business Solutions (“SBS”) +5% +6%

Sage Payment Solutions (“SPS”) +1% +4%

North America +4% +6%

Brazil +9% n/a

Americas +5% +6%

The Americas, where full year results from Brazil are recorded in

organic revenue for the first time, delivered organic revenue growth

of 5%. Organic recurring revenue grew 6% (2013: 7%) and organic SSRS

revenue grew 1% (2013: 2%). The rate of growth in the Americas has

fallen, despite the introduction of high-single digit growth in Brazil,

as a result of a slowdown in the rate of premium support up-selling

and a sharp decline in the rate of growth in Sage Payment Solutions.

SBS – premium support underpins growth

SBS grew organic revenue by 5%. Premium support up-selling remained

the principal driver of growth reflecting focus on migrating tax-only Sage

50 US and Canada customers to the full premium support service in the

SSB segment. The business also delivered growth in the SMB segment

through Sage 100 and Sage 300 premium support initiatives. However,

the overall rate of maintenance and support growth has fallen modestly

as certain upgrade initiatives came to an end during the second half of

the year.

SSRS revenue in the mid-market grew at double-digits as Sage ERP X3

continues to perform strongly in North America. This offset some SSRS

revenue contraction in the SMB segment across the sunset portfolio as

customers migrate to other products that better serve their needs.

SPS – pricing and competitive pressures reduce rate of growth

SPS grew organic revenue by 1%, down from 4% last year, reflecting

a particularly challenging second half of the year. As highlighted with our

third quarter trading update, the slowdown reflects market-wide pricing

pressure driving margin compression through the merchant acquirer

channel and the loss of a signification merchant acquirer partner in the

first half of 2014.

A number of steps have been taken to stabilise margin compression

but the merchant acquirer loss will have a negative impact on revenue

in the first half of 2015. We remain cautious about the growth prospects

of payments going into 2015 and are focused on driving the cross-sell

of integrated payment solutions into the Sage installed base.

Brazil – accounting and payroll software delivers double-digit

growth despite economic slowdown

Organic revenue in Brazil grew by 9%. Accounting and payroll software

revenue has grown in excess of 20% during the year, benefiting from

some legislative change. Technical content revenue growth was low

as the subdued demand for this service continues, with businesses

looking to reduce costs in the face of toughening macroeconomic trading

conditions. We are taking steps to respond to this issue that include

bundling some technical content into the core accounting subscription.


Organic operating profit in Americas increased to £106m (2013: £98m),

representing a margin of 25.7% (2013: 25.0%). The increase in margin

is the result of improved operating leverage and controlled expenditure,

particularly around headcount costs. There has also been a strong focus

on reallocation of R&D investment towards Invest products and on

reducing non-core product-related overheads.

AAMEAOrganic revenue growth 2014 2013

South Africa +16% +14%

Australia +6% +1%

Middle East and Asia +12% +11%

AAMEA +12% +9%

Organic revenue grew strongly in AAMEA at 12%, with organic recurring

revenue growing 14% (2013: 11%) and organic SSRS revenue growing

10% (2013: 7%). South Africa again led the acceleration in growth despite

a marked slowdown in the wider economy.

South Africa – strong double-digit growth performance

Organic revenue growth in South Africa increased to 16%, with the rate

of organic recurring revenue growth accelerating to 19% from 16%, and

SSRS growth increasing to 13% from 12%.

The South African mid-market has continued to perform well, with

Sage ERP X3 and VIP People Payroll the standout products. Payroll

subscription revenue and payments growth drove the acceleration

in recurring revenue growth.

South African growth is also underpinned by annual price increases

that reflect the current rate of inflation of around 6%.

The contribution of revenue from the wider African continent continues

to increase in importance, comprising 13% of total South African revenue

and growing 22% organically (2013: 22%).

Australia, Middle East and Asia

In Australia, we delivered organic revenue growth of 6%, with price

increases on key products Micropay and Handisoft responsible for

the majority of this growth.

The Middle East and Asia grew organically by 12%, with good growth

in the Middle East and Singapore driving performance.


AAMEA organic operating profit has increased to £39m (2013: £35m),

although this represents a decrease in margin to 27.2% (2013: 27.4%).

During the year, there was increased investment in headcount across

customer support, professional services and mid-market payroll. There

was also additional investment into the rest of Africa with the opening

of a new office in Lagos. Profitability in AAMEA was largely unaffected

by the non-core product disposals.


Corporate responsibility

Our Corporate responsibility policy

Our Corporate responsibility (“CR”) activities offer Sage the opportunity to be a good corporate citizen while supporting our global vision.

Our global CR policy focuses on four key areas where we

believe we can make the most difference. For three of these

– People, Environment and Industry – we have established

a global framework for our operating companies to work

within, allowing them flexibility over which area to invest in

according to what will have the most meaning and impact

locally. Whilst local legal standards apply as an absolute

minimum, we aim to achieve good practice in our local

markets and share this across the Group. The fourth area

– Community – is entirely locally driven, allowing our people

to support causes close to them and to become involved

in their communities.

Sage has been independently assessed against the

FTSE4Good criteria and satisfied the requirements to

become a constituent of the FTSE4Good Index Series,

which is an equity index designed to facilitate investment

in companies that meet globally recognised corporate

responsibility standards.

People

Given the nature of our business we have not included

information specifically about human rights issues in

this report. We have a Code of Ethics, available at

www.sage.com, which recognises the importance of

treating all of our employees fairly, covering issues such as

responsible employment, diversity and equal opportunities.

This is an effective way of communicating, at a high level,

the principles which should be applied in the conduct

of our business.

Environment

We continue to analyse our impact on our environment.

We remain committed to reducing our energy consumption

and related emissions where possible, as well as reducing

the wider impact we have through the use of resources

and how much landfill waste we generate.

Industry

We aim to leverage the unique relationships that we

have with our customers across the globe to continue to

understand and support the issues and challenges that

they face.

Community

Our local communities are important to us. We support a

number of charities and community organisations worldwide

in order to make a positive impact on the communities

where we have a presence. Our employees are dedicated

to raising funds for charity and volunteering their time to help

the local community.

Board reporting

Our CR policy has been endorsed by our Board who

are updated on CR risks and opportunities by the

Company Secretary.

Ethics

We are committed to conducting business in an honest

and ethical manner. We act according to our Code of Ethics,

which is integral to us and sets out a range of principles

we adhere to. In particular, we do not tolerate bribery and

corruption and are committed to acting professionally,

fairly and with integrity in all our business dealings and

relationships. We enforce effective systems and processes

to counter bribery and corruption and we continue to

create new ways for employees to anonymously report

any related concerns.

As a UK company, The Sage Group plc is bound by the

laws of the UK, including the Bribery Act 2010, in respect of

our conduct both at home and abroad. In addition, we will

uphold all laws relevant to countering bribery and corruption

in all the jurisdictions in which we operate.

As well as ensuring our own conduct is appropriate, we

have also put in place procedures to prevent bribery being

committed on our behalf by any associated persons,

particularly in our subsidiaries, and third parties we work

with. Our leaders sign a declaration relating to the Code of

Ethics to make sure any additional business commitments

or client and supplier relationships they may have are clear

and transparent.

Data protection

We take data security and privacy seriously. Customer

data is handled sensitively, with respect, and in a way

that complies, as a minimum, with the requirements of

data protection laws in the countries in which we operate

and, where appropriate, regional legislation. We also

work with local legislative bodies and data protection

agencies and continuously look to strengthen our systems

and procedures.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

People

Our vision is to be recognised as the most valuable supporter of small and medium sized companies by creating greater freedom for them to succeed. Our people pride themselves on delivering an extraordinary customer experience to underpin this vision.

They are also proud to work at Sage and, in turn, we are committed to leveraging, developing and recognising talent across our organisation.

Guiding principles

Our guiding principles drive our culture and shape how we think, plan, behave and make decisions.

Simplicity

Maintaining simplicity in a complex world is challenging, but we believe it is vital to work in an organisation

where things are clear, easy to understand and direct. We believe it creates an environment that is more

relaxed and that frees people to perform to their potential.

Agility

Business is fast-paced and ever changing, so when customers need us we have to respond quickly and

efficiently. However, being reactive isn’t enough. We believe in a more proactive approach, which requires

us to anticipate and interpret our customers’ needs so that we’re ready to meet them. Having the agility to

find relevant, effective solutions and deliver them at the right time is what sets us apart.

Innovation

We’re always looking at new ways to improve the customer experience. From product innovation to how

we work together, creativity can make all the difference. That’s why we encourage our teams to explore

innovative ideas, because our future success depends on it.

Trust

By using Sage products our customers are committing to us, so they must be able to trust us to deliver.

Our customers need to know we are on their side, providing tailored products and services that meet their

needs and offering expert advice and support to help them run their businesses.

Integrity

Whether we are providing software products to our customers or giving them business advice and support,

integrity is central to maintaining our credibility. It is about delivering on our promises, being reliable and

maintaining the highest of standards. That is how we build trust and loyalty with our customers.


Corporate responsibility continuedPeople continued

Building inner confidence

We are committed to making Sage an inspiring and

engaging place to work. Our brand is all about creating

business confidence for our customers – so it is important

that our people all have the "inner confidence" needed to

ensure that we deliver this to our customers.

Our people therefore require the right training, the right

tools to do the job, feel supported by their managers and

understand how their work fits with what we are trying

to achieve as a business. We try hard to create this

environment but there is always more we can do.

In February 2014, we launched our first global People

Survey. 82% of our people – around 10,600 employees –

responded, so we are confident that the results give a clear

and true reflection of how our people feel about working at

Sage. The results have provided us with a real insight into

what is working well for our people as well as some key

areas for us to focus on. Work is well underway across

our business to develop action plans and a further interim

survey will take place in early 2015 to track our progress.

Redefining the Sage Employee Value Proposition

As part of our ongoing commitment to making Sage a

great place to work we have initiated a global project to

redefine the Sage Global Employer Brand and Employee

Value Proposition ("EVP"). We have engaged our people

through focus groups and workshops to understand

what is important to them so that we can define our core

proposition. We will be establishing a clear framework

to enable us to bring our EVP to life consistently across

the business and at all points of the employee experience

life cycle.

Equipping our people for change

Ensuring our people are equipped with the relevant skills and

training is a key focus. In many regions we’ve invested heavily

in bespoke learning and development to ensure our people

continue to deliver an extraordinary customer experience.

In Spain, the Sage Sales University provides a platform

to ensure employees are clear on business priorities and

targets. It also provides a networking opportunity so that

colleagues can learn from one another’s experiences.

In North America, employees within R&D benefit from

expanded learning tools, including an online learning platform

that provides real time, online access to enhance technical

skills and applications.

We’ve also implemented a number of programmes to

improve our capabilities in support of our customers,

including investing in technical skills and cross-training

of our support teams to extend coverage beyond a single

product. For example, in North America, nearly half of

our analysts are able to serve customers across multiple

products, enhancing their engagement, talents and value.

Transforming the way we work

Our global strategy requires us to transform the way that we

work. As cloud technology evolves to make data accessible

anywhere and on any device, Sage is responding by

providing customers with flexibility and choice to take

advantage of these technologies.

This has resulted in more people working across traditional

boundaries with a greater need to share and access

common data, as we see increasing levels of global

collaboration to deliver our strategic initiatives.

We are investing in technology to support these new ways

of working, particularly by leveraging common platforms

and enabling our people to take advantage of the cloud.

At a regional and country level we are also streamlining our

systems and processes to ensure we achieve our goals. We

are aligning our finance functions across North America and

Europe to best meet the needs of the business and we’re

exploring ways in which we can leverage our scale using

common ERP systems.

Sage People Survey

of our people understand our business strategy

73%82% employees responded to the survey

10,600We are confident

that our results give

a clear and true

reflection of how our

people feel about

working at Sage.

of respondents are proud to work at Sage

77%

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


To meet the needs of our global strategy we have taken a well-planned

approach to the development of our talent.

Across our leadership population we have continued to implement

our global talent management process "Talking Talent" to assess

capabilities, identify talent strengths, risks and opportunities as well

as targeted succession planning for key roles. We continue to invest

in leadership evaluation and have increased our investment in

performance management.

Our approach has identified internal successors for key senior roles

in the organisation, including the recent appointment of our Chief

Marketing Officer, Santiago Solanas, and our Mid-market Europe

Chief Executive, Jayne Archbold.

We have extended our programme beyond the Top 100 leaders to

nearly 200 leaders in Europe and we are taking this further into the

business and across all regions to gain a better understanding of key

talent. In North America, this process has been widened to include

key roles within R&D, Sales Operations and Product Management that

align closely to strategic performance.

In addition, we have rolled out several leadership development

programmes at a global and regional level including Confident Leader,

Leading Change, Creating a High Impact Performance Environment

and Leading and Working in a Matrix Environment.

Global mobility is playing an increasing role in transferring skills and

knowledge across Sage and our approach enables us to close skills

gaps, address talent shortages and fuel business growth around the

world. At the same time, the employee benefits from the opportunity

Developing our talent

to experience a new culture, bring their skills and experience to

a new group of colleagues and projects, and accelerate their

own development.

Examples of where global talent has been deployed include

leveraging expertise between regions through the deployment of

senior executives and other key talent to assist with strategic projects.

We encourage the sharing of knowledge, experience and success

as a way of improving our approach to new products, initiatives

and projects.

In North America we have implemented a new Human

Capital Management System to provide a consistent system

of record across the region whilst linking seamlessly with

other HR and Finance tools. In support of this work and the

increasing collaboration and efficiency it represents, we now

have a Chief Information Officer responsible for both North

America and Europe.

A further example of integration and sharing best practice

is the launch of the first phase of a cloud-based global

performance management system, which builds on work

initiated in North America, for the benefit of teams across

the world.

We are also looking at ways in which Office 365 can

enable our people to connect globally, access news and

information, share insights and provide feedback to help

facilitate the delivery of our vision and strategy.

As well as supporting us in achieving our business ambitions,

these projects and initiatives generate improvements for our

global Sage community and provide further professional

growth and career development opportunities.

Recognising our people

Sage strives to provide a work environment where our

people feel valued and appreciated in order to help attract,

motivate and retain the talent required to achieve our goals.

We continue to recognise and celebrate success and this

year we launched the Sage Europe awards to recognise

the contribution and outstanding performance of over 7,000

employees in that region in bringing our strategy to life. The

awards build on existing country-based programmes, such

as the Sage Guiding Principle Awards, which are well

established within our Sage UKI organisation.

In South Africa, we recognise employees’ contribution

to success through a range of monthly, quarterly and

annual awards. Employees are invited to an annual

"Oscars" weekend as thanks for their hard work and

dedication, where awards are presented to recognise

outstanding performance.

In North America, in addition to existing programmes

such as the Extraordinary Customer Experience awards,

several targeted programmes were implemented this year

to acknowledge employees’ time, talents and effort. The

Customer Experience Honors programme recognises

and rewards customer-facing support and service team

members for the value they deliver as part of our Sage

Advisory Level Services.

Santiago Solanas, Group Chief Marketing Officer


Diversity

Sage customers come from many nationalities and

backgrounds and our commitment is that Sage people

will reflect their diversity.

We will demonstrate our commitment by:

– Promoting equal opportunity for our current and

potential team members

– Reflecting the communities in which we work

– Aiming to build teams which reflect the diversity

of our customers

– Treating our customers, partners and team members

fairly and with respect

– Promoting an environment free from discrimination,

bullying and harassment, and tackling any behaviour

which may breach this intent

– Providing support and encouragement to our people

to develop their careers and increase their contribution

to Sage and our customers

We will provide equal opportunity to all our people and will

not tolerate discrimination on grounds of gender, gender

identity, marital status, sexual orientation, race, colour,

nationality, religion, age, disability or any other grounds

other than performance.

We will regularly assess and refocus our effectiveness

in reflecting the diversity of our customers, and strive

to improve all the time.

Gender

We continue to value the aims and objectives of The Davies

Report on Women on Boards. In considering appointments

to the Board and to senior executive positions, it is our policy

to evaluate the skills, experience and knowledge required by

a particular role with due regard for the benefit of diversity on

the Board and at senior management level and make an

appointment accordingly.

Following the appointment of Inna Kuznetsova as a

Non-executive Director in March 2014 we have 25% female

representation at Board level. Our top leadership population

is 22% female, and this proportion is higher within the

majority of our core operating companies. 46% of our

total workforce profile is female. Examples of some local

gender-specific initiatives include Spain’s Equality Plan and

the UKI’s Enterprise for Women network aimed at supporting

and encouraging career development of women through

networking events and workshops.

Corporate responsibility continuedPeople continued

Board diversity

Men 6 6

Women 2 1

% Men 75% 86%

% Women 25% 14%

2014 2013

Top leadership diversity

Men 127 114

Women 36 33

% Men 78% 78%

% Women 22% 22%

2014 2013*

Total workforce diversity

Men 7,017 6,830

Women 5,958 5,930

% Men 54% 54%

% Women 46% 46%

2014 2013

* Prior year top leadership diversity fi gures have been restated on a like-for-like basis with the current year to include all employees who are registered directors of one or more Group companies. The previously reported numbers of 84 men and 27 women captured employees who fulfi l a leadership role in delivering global strategy. However, not all employees who are registered directors of one or more Group companies fall into this category.

Year-end employee count split by region1

Europe Americas AAMEA

Group and central

operations Total

20132 7,063 3,546 2,006 145 12,760

2014 7,114 3,585 2,134 142 12,975

1 Figures shown are on an organic basis.

2 Last year, employees and associated costs attributable to Sage ERP X3 were disclosed as part of Group and central operations. This year they are included as part of Europe. 2013 fi gures have been restated on a like-for-like basis.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Environment

Greenhouse gas emissions

This section includes our mandatory reporting of

greenhouse gas emissions pursuant to the Companies

Act 2006 (Strategic Report and Directors’ Report

Regulations 2013 (the “Regulations”)). We include this

reporting data here in order to provide a complete

CR picture.

Reporting year

We have defined our greenhouse gas emissions reporting

year so that it aligns with our financial year, being 1 October

2013 to 30 September 2014.

Global greenhouse gas emissions data

For period 1 October 2013 to 30 September 2014

Emissions from:Tonnes of CO2

Equivalent (CO2e)

FY14 FY13

Combustion of fuel and

operation of facilities 9,238 9,550

Electricity, heat, steam and

cooling purchased for own use 15,796 17,943

Company’s chosen

intensity measurement:

– Emissions reported above

normalised to tonnes of CO2e

per total GBP£1,000,000 revenue 19.16 19.98

We aim to reduce the energy our business uses and make the most of recycling opportunities. We comply with local laws as a minimum standard and Sage continues to take part in the global Carbon Disclosure Project.

Organisation boundary and responsibility

We report our emissions data using an operational control

approach to define our organisational boundary which meets

the definitional requirements of the Regulations in respect of

those emissions for which we are responsible.

We have reported on all material emission sources for

which we deem ourselves to be responsible. These sources

align with our operational control and financial control

boundaries. We do not have responsibility for any emission

sources that are beyond the boundary of our operational

control. For example, business travel other than by car

(including, for example, commercial flights) is not within

our operational control and, therefore, is not considered

to be our responsibility.

Methodology

The methodology used to calculate our emissions is based

on the “Environmental Reporting Guidelines: including

mandatory greenhouse gas emissions reporting guidance”

(June 2013) issued by the Department for Environment,

Food & Rural Affairs (“DEFRA”). We have also utilised

DEFRA’s 2014 conversion factors within our reporting

methodology. In some cases, we have extrapolated total

emissions by utilising available information from part of a

reporting period and extending it to apply to the full reporting

year. For example, this has occurred where supplier invoices

for the full reporting year were not available prior to the

publication of this year’s Annual Report & Accounts. For

further details, our methodology document can be found at

www.sage.com/about-sage/corporate-social-responsibility.


Scope of reported emissions

Emissions data has been reported for all the Group’s

operations in Australia, Austria, Belgium, Brazil, France,

Germany, Ireland, Malaysia, Morocco, North America,

Poland, Portugal, Singapore, South Africa, Spain,

Switzerland, the United Arab Emirates and the UK.

In the prior year, given the short time between the passing

of the Regulations and the preparation of the report, it

was not possible to report on all emissions. We have put

the following procedures in place to enable us to report

on a wider range of emissions this year:

– Development of a Group-wide mandatory

greenhouse gas reporting manual

– Roll-out of Group-wide training sessions

– Country level review procedures

– Group-level quality reporting

The emissions that have not been included in this year’s

report relate to building usage in our operations in

Belgium and the United Arab Emirates, where energy

usage is not itemised on invoices. We have also not

included emissions derived from refrigerant gas usage in

relation to our operations in XRT Brazil, Singapore and the

United Arab Emirates, as this information has not been

gathered throughout the reporting year.

Intensity ratio

In order to express our annual emissions in relation to

a quantifiable factor associated with our activities, we

have used revenue in our intensity ratio calculation, as

this is the most relevant indication of our growth and

provides for a good comparative measure over time.

Baseline for 2014 targets

The 2013 data forms the baseline data for

subsequent periods.

Carbon Disclosure Project

We once again took part in this project during the year under

review by reporting our gas (Scope 1) and electricity (Scope 2)

emissions for the financial year ended 30 September 2013.

Reducing carbon and waste

We have continued to make a concerted effort to reduce

our carbon footprint. For example, across our business we

have continued to focus on the reduction of business travel

emissions by:

– Introducing a new car travel policy

– Purchasing new, more fuel efficient fleets

– Introducing the use of bio-ethanol

– Promoting the use of rail travel

– Installing more offices with motion sensor LED lights

– Restricting heating to working hours in many

of our sites

Sum of CO2e (tonnes)

10,000 12,000 14,0008,0006,0004,0002,0000

1,075 4,724

7,539 6,607

624 4,465

Europe

AAMEA

North America and Brazil

Combustion of fuel and operation of facilities

Electricity, heat, steam and cooling purchased for own use

Corporate responsibility continuedEnvironment continued

Total CO2e by type

Combustion of fuel and

operation of facilities

Electricity, heat, steam and

cooling purchased for own use

9,238

15,796

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Industry

Understanding the issues small and medium sized businesses face

Having a clear understanding of the challenges our

customers face is important to us to ensure our products

and services meet their needs. In addition to the over

30,000 conversations we have each day with our customers

through our support offering, we also conduct regular

research and surveys, both locally and globally, to collect

as much insight and information as we can.

Our global Sage Business Index survey helps us remain

close to what matters most to SMEs. This year we surveyed

close to 14,000 businesses across 18 countries, providing

a comprehensive study of business confidence and the

pressures faced by decision makers within companies

around the world.

Local markets also carry out their own research allowing

Sage to gain an insight into individual markets and adapt

our business to support them. For example, in Spain we

carry out "Sage Observatory", a collection of four annual

surveys learning about how technology, the government

and the economy are affecting SMEs in Spain.

Supporting local businesses and organisations

Our vision of being the most valuable supporter of small and

medium sized businesses means helping them understand

and navigate through the business challenges they face. This

year we launched our global Business Navigators campaign,

which aims to raise awareness and promote the benefits

mentoring can have on business growth and success.

Locally we sponsor different organisations which are aiding

small and medium sized businesses. For example, in the UKI

we are sponsoring Europe’s first £1m technology accelerator

programme, Ignite 100, to support technology start-ups

in Newcastle, who are encouraged to join an 18-week

accelerator programme. As well as £10,000 funding, Sage

offers guidance and expert advice to the Ignite 100 start-ups.

In North America we support the National Association of

Women Business Owners annual event and conference,

whose aim is to support women business owners and give

them the power to succeed. We encourage education in

our industry through events such as the Economics and

Management week, and through our work with the South

African Institute of Chartered Accountants ("SAICA"). Sage

also hosts online forums and information sessions throughout

the year, providing knowledge on economic and legal

changes that are affecting SMEs.

We pride ourselves on really understanding our customers, both their common needs and their unique requirements, and we look to deploy that empathy and insight in our CR activities.

Ignite 100

Sage provided £10,000 funding to Ignite 100, Europe’s first

£1m technology accelerator programme, as well as providing

guidance and expert advice to Ignite 100’s start-ups.

“I’m delighted that Sage is now leading the way by working with Ignite 100 to support early-stage technology start-ups. Sage has inspired plenty of entrepreneurs in the past. Now that it is actively supporting technology businesses in Newcastle through community support and mentoring, it will continue to do so in the future.”

— Paul Smith, co-founder and director of Ignite 100

£10,000funding for Ignite

30,000+conversations each day with our customers

13,710businesses polled for our Sage Business Index


David Milstead, UK Apprentice

David Milstead, 22, is one of our 12 apprentices in the UK with a passion for coding and

product development. On deciding university wasn’t for him, he found the Sage apprenticeship

scheme was the right path to develop his skills and build a career. David is now a key member

of our research and development team.

“I’m really enjoying the apprenticeship and software development is definitely the career path for me. I’d like to go on to a junior developer’s role so I can progress my career through to senior developer and manager.”

– David Milstead

12Apprentices in the UKI

438Organisations Sage has donated software to

Corporate responsibility continuedIndustry continued

Helping non-profit organisations with business software

is also high on our agenda. In North America, Sage has

continued a partnership with TechSoup, an organisation

that provides free business software to not-for-profit

organisations. This year alone, Sage has donated software

to 438 organisations, with a value of $221,000 (£135,000),

twice as much as the previous year.

We also support our customers by providing them with

opportunities they would not usually have. This year we

launched the “Bag yourself a Billboard” competition through

which the UK-based online creative community, Gather.ly,

won a £100,000 advertising space in London’s tech city

to help boost their business.

Developing the entrepreneurs of tomorrow

We believe passionately in the value of developing future

talent, both within Sage and in the wider business community.

We work with a number of organisations to help nurture the

entrepreneurs of tomorrow, such as the Junior Achievement

Foundation in Spain which gives university students the

experience of developing their own company. Twenty Sage

volunteers worked with the 152 students who took part and

guided four projects through to the national competition.

In South Africa, we continue our support of the Life

College, which focuses on developing emotional intelligence,

entrepreneurship and leadership in youth. We continue to

sponsor their annual event, The Life College Xchange, a

competition where students are provided with seed capital

to launch a small business. The event also gives students

the chance to network and learn from business experts. In

Portugal we support Vodafone Labs Lisboa, Start-up Lisboa

and Start-up Campus campaigns, which all work towards

the development of entrepreneurs.

Throughout the business we develop the new talent of

tomorrow through apprenticeships. In the UKI, we take

on 12 apprentices each year, offering valuable learning

opportunities for students to build a career. In South Africa,

in addition to our long-standing partnership with SAICA,

through the Thuthuka programme we identify students with

an aptitude for maths, science and accounting. The winner

is awarded the Olympiad prize, including a full bursary from

Sage to further their education in accountancy. In South

Africa, we also provide a full bursary and three-week vacation

scheme to a student studying either an accountancy or

technology-related course through the Tomorrow Trust.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort


Community

Giving our time to help charities

We support a number of charities and community

organisations locally and globally. Moreover, our people

love taking the opportunity to dedicate some of their time

to the local causes that matter to them. In North America

and the UKI, through the Volunteer Day Benefits programme,

our employees are given paid days off to volunteer on

programmes such as Right to Read and Code Club,

where they support, teach and develop children’s

learning and skills.

Sage Day is an annual event in July, where our employees

have the opportunity to get involved in local communities and

charity work together. This year, in South Africa, it coincided

with Mandela Day, so our employees chose to raise money

to purchase homeware through Sage Day, with 50

volunteers visiting Afrika Tikkun’s Diepsloot community

centre to deliver the parcels of homeware and entertain

the children.

Our operating companies also come up with unique and

fun ways to raise money. In South Africa, we host an annual

Shave-athon to support the Cancer Association of South

Africa, who carry out research to find cures and treatments

for cancer patients. This year we raised R135,000 (£8,000).

In the UKI, our employees took part in three annual bike

rides: Coast to Coast, London to Paris and London to

Alpe d’Huez. They raised an impressive £24,000 for

Cancer Research, contributing to a total of £668,000

over our eight-year partnership.

We also do more than just donate funds. For example,

our team in Spain continued their annual support of the

National Food Bank, donating 400 kilos of food this year.

We held a food donation day in Portugal in partnership with

Kelly Services as well as donating 800 toys to children with

cancer through the One Toy One Smile campaign.

Throughout the business, we also have initiatives in place

to encourage our employees to continue supporting the

community through matching donations, providing personal

sponsorship and encouraging them to vote for the

charities we should support.

Investing in young people

Sage has always believed in the talent of tomorrow and this

is seen through our support of apprentices and bursaries.

In South Africa, we have a long-standing joint initiative with

Penreach Trust and King David School Foundation. Sage’s

support provides training and resource materials for

educators in rural or disadvantaged areas to help deliver

a better education. This year, in South Africa, we have

sponsored the installation of a library at Dr Beyer Naude

School in Soweto, with employees donating books. In

Portugal, we also held a book donation initiative labelled

“reusing is better than recycling”.

Our involvement in local communities is about more than business, so we empower our operating companies to set their own targets and goals because they know best what will really make a difference locally.

Afrika Tikkun Diepsloot community centre

In South Africa, Sage has supported Afrika Tikkun, a well-established non-governmental

organisation which works in six of the most impoverished communities in South Africa, for

the past six years. This year our staff raised funds during Sage Day to buy homeware for

the Diepsloot community and donated their time to visit the community centre.

“Thank you very much for making a difference to the families that received your gifts. The warmth and artistic flair of the Sage staff left many of our children with smiles on their faces. These are moments of magic that allow some of our children to forget about some of the hardships they are faced with on a daily basis and enjoy life.”

– Afrika Tikkun


Our 2014 Strategic report, from page 2 to page 59, has been reviewed and approved by the Board of Directors on 3 December 2014.

Steve Hare,


Strategic report

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Go

vern

an

ce

Chairman’s introduction to Corporate governance

It also involves the creation of a sensitive interface for the views

of shareholders and other stakeholders to be given appropriate

consideration when reaching these judgements.

The executive team is required to provide such information to the

Board as the Board needs to enable it to exercise its judgement over

these matters. It must also evidence appropriate process. There is a very

fine distinction between the approval of processes and their definition.

Only exceptionally would the Board intervene to initiate or define.

The Board also sets the tone for the Company. The way in which it

conducts itself, its attitude to ethical matters, its definition of success

and the assessment of appropriate risk, all define the atmosphere

within which the executive team works.

Good corporate governance is not about adhering to codes of practice

(although adherence may constitute a part of the evidence of good

governance) but rather about the exercise of a mindset to do what is

right. One of the challenges facing any Board is the way in which the

non-executive and the executive directors interact. It is clear that they

each have the same legal responsibility but it is generally unrealistic to

expect executive directors to speak individually with the same freedom as

the non-executive directors. Equally, executive directors who just “toe the

executive line” in contradiction to their own views may not be effectively

contributing to good governance. A well-functioning Board needs to find

the right balance between hearing the collective executive view, being

aware of the natural internal tensions in an executive team and allowing

independent input from the non-executive directors.

One of the consequences of both increasing the watchdog role of the

Board and finding this balance between individuality and team behaviour

is driving more and more Boards to have fewer and fewer executive

directors. In our circumstances as a holding company for a number of

businesses, the reduced Board size works effectively and an appropriate

balance is struck.

Notwithstanding the tensions created by many external expectations,

which may be wholly or in part unrealistic, a successful Board should,

ideally, be composed of a group of respected, experienced, like-minded

but diverse people who coalesce around a common purpose of

promoting the long-term success of the company, provide a unified vision

of the definitions of success and appropriate risk, endeavour to support

management (i.e. those who honestly criticise at times but encourage all

the time) and who create confidence in all stakeholders in the integrity of

the business.

Donald Brydon, CBE

Chairman

The Board of the Company is committed to ensuring that it provides

effective leadership and promotes uncompromising ethical standards.

One of the ways in which the Board achieves this is by requiring that

good governance principles and practices are adhered to throughout

the Company. The Board determined that the following is a helpful

summary of its role:

Good governance is about helping to run the Company well. It involves

ensuring that an effective internal framework of systems and controls

is put in place which clearly defines authority and accountability and

promotes success whilst permitting the management of risk to

appropriate levels.

It also involves the exercise of judgement as to the definitions of success

for the Company, the levels of risk we are willing to take to achieve that

success and the levels of delegation to the executive.The exercise of this

judgement is the responsibility of the Board and involves consideration of

processes and assumptions as well as outcomes.

Compliance with the UK Corporate Governance Code 2012 (“the Code”) and its statement requirements

Throughout the financial year ended 30 September 2014 and

to the date of this report, Sage has complied with the provisions

of the Code, including updates which have applied since our

year-end. The Code is publicly available at the website of the

UK Financial Reporting Council at www.frc.org.uk. This corporate

governance section of the Annual Report & Accounts describes

how we have applied the principles of the Code.

Dear Shareholders


Board of Directors

Chairman

Appointed to the Board:

6 July 2012

Experience:

Donald had a 20 year career

with Barclays Group, during

which time he was Chairman and

Chief Executive of BZW Investment

Management, followed by 15 years

with the AXA Group, including

the posts of Chairman and

Chief Executive of AXA Investment

Managers and Chairman of

AXA Framlington. He has also

recently chaired the London Metal

Exchange, Amersham plc, Taylor

Nelson Sofres plc, the ifs School

of Finance, Smiths Group plc and

is a past Chairman of EveryChild.

Donald has also served as

Senior Independent Director

of Allied Domecq plc and

Scottish Power plc.

Other current appointments:

– Royal Mail plc – Chairman

– Medical Research

Council – Chairman

Board Committees:

– Nomination Committee (Chair)

– Remuneration Committee

Chief Executive Officer –

Executive Director


5 November 2014

Experience:

Stephen has over 30 years’

leadership experience in the

SME and technology sector.

He has previously served as

Chief Executive Officer of two

high-growth, public software

companies – NASDAQ listed

Chordiant Software, Inc. from

2001 to 2005 and LSE listed Micro

Focus International plc. from 2006

to 2010. In 2012 he was appointed

Chief Operating Officer for UK

Government where he was the

most senior executive responsible

for the UK Government’s Efficiency

& Reform agenda, including

Digital, Commercial, IT and

SME strategies.

Stephen has been an angel

investor and director in a

number of high growth start-ups

(including Deloitte UK Technology

Fast 50 Award winners).

Chief Financial Officer –

Executive Director


3 January 2014

Experience:

Prior to joining Sage, Steve was

Operating Partner and Co-Head

of the Portfolio Support Group

at the private equity firm Apax

Partners, which he joined in 2009.

Before his work at Apax Partners,

he built over 10 years’ experience

leading the finance function

for three listed UK companies

culminating as CFO for FTSE 100

company Invensys plc from 2006

to 2009. Between 2004 and 2006

Steve was Group Finance Director

for Spectris plc, the FTSE 250

precision instrumentation and

controls company and from 1997

to 2003 he was with Marconi PLC,

serving as CFO from 2001.

Steve qualified as a Chartered

Accountant in 1985 with

Ernst & Whinney, now part

of Ernst & Young.

Senior Independent

Non-executive Director


13 September 2006

Experience:

Ruth has over 30 years’

experience of international

services businesses, and has

held a number of non-executive

director positions. She joined

Freshfields in 1977 and served

as Managing Partner of Asia at

Freshfields Bruckhaus Deringer

from 1996 to 2003. She also

served as the Chairman of

the Board of Trustees at the

WRVS until November 2012.


– Standard Chartered plc –

Senior Independent Non-

executive Director

– Arcadis NV – member

of the Supervisory Board

Board Committees:

– Audit Committee

– Nomination Committee

– Remuneration

Committee (Chair)


Donald Brydon (69) Stephen Kelly (52) Steve Hare (53) Ruth Markland (61)

Changes to the Board

In the financial year to 30 September 2014 and to the date of this report, there have been the following changes to the Board of Directors:

Non-executive directors

Drummond Hall Appointed on 1 January 2014

Inna Kuznetsova Appointed on 6 March 2014

Ian Mason Retired on 30 November 2013

Mark Rolfe Retired on 30 November 2013

Executive directors

Steve Hare CFO Appointed on 3 January 2014

Guy Berruyer CEO Retired on 5 November 2014

Stephen Kelly CEO Appointed on 5 November 2014

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Independent



1 January 2014

Experience:

Previously Drummond was Chief

Executive of Dairy Crest Group plc

from 2002 to 2006, prior to which

the majority of his career was spent

with Procter and Gamble, Mars

and PepsiCo. Drummond was a

non-executive director of Mitchells

& Butlers plc from July 2004 to

January 2010 and Chairman from

June 2008 to November 2009.


– WH Smith plc –

Senior Independent


– First Group plc –

Senior Independent


Board Committees:

– Audit Committee



Independent



15 May 2013

Experience:

Jonathan is currently Group

Finance Director of Close Brothers

Group plc, joining in February

2008, and previously held the

same position at the London

Stock Exchange Group plc from

1999. Jonathan has also been

a non-executive director of

EMAP plc and Chairman of

FTSE International. The early

part of his career was at Price

Waterhouse where he qualified

as a chartered accountant.


– Close Brothers Group plc –

Group Finance Director

Board Committees:

– Audit Committee (Chair)



Independent



6 March 2014

Experience:

Inna is former Chief Commercial

Officer and Executive Board

member at CEVA Logistics, where

she worked from 2012 until 2014.

Prior to joining CEVA, Inna spent

19 years at IBM, where she held a

number of different roles focusing

on building and running strong

organisations in sales, business

development and marketing,

culminating as Vice-President,

Marketing & Sales Enablement,

IBM Systems Software and ISVs.


– None

Board Committees:

– Audit Committee



Independent



5 July 2013

Experience:

Neil has over 30 years’

experience in a wide range of

highly competitive consumer

industries. Most recently, he was

Chief Executive of Virgin Media

Group from March 2008 to June

2013, having joined ntl, Virgin

Media’s predecessor, as Chief

Operating Officer in September

2005. Before ntl he was Managing

Director, Distribution, at Lloyds TSB

plc. His previous roles include Chief

Operating Officer at Prudential

Assurance Company Ltd UK,

Head of Retail at St George Bank,

Senior General Manager at the

Australian division of Citibank

Limited, Chief Executive at

Eastwest Airlines Australia and

Financial Controller at ICL Australia.


– Guardian Media Group –

Chairman

– Bank of Queensland Ltd –


– NSPCC – member of the

Board of Trustees

Board Committees:

– Audit Committee



Drummond Hall (65)Jonathan Howell (52)Inna Kuznetsova (46) Neil Berkett (59)


Executive Committee

Stephen Kelly

Ivan Epstein

Alvaro Ramirez

Steve Hare

Santiago Solanas

Michael Robinson

Richard Drury

Pascal Houillon

Klaus-Michael Vogelberg

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Stephen Kelly (52)

Chief Executive Officer, Board of Directors

For Stephen Kelly’s skills and experience see page 62.

Steve Hare (53)

Chief Financial Officer, Board of Directors

For Steve Hare’s skills and experience see page 62.

Richard Drury (52)

Group Human Resources Director

Based: UK

Experience:

Richard is responsible for leading human resources at Sage. His role

is to develop and lead the implementation of our global strategy for

organisational design, reward, leadership development, performance,

talent, employee engagement and internal communications. Richard

joined Sage in June 2013 from technology business Invensys plc, where

he held a number of human resources leadership roles including Group

Human Resources Director, and was responsible for providing services

to over 21,000 employees across Europe, the Americas, Asia and the

Middle East. Prior to Invensys, Richard worked in human resources in

Whitbread’s hotel and pub retail businesses and with British Airways,

where he held both HR and customer services leadership roles.

Ivan Epstein (54)

Chief Executive Officer, AAMEA

Based: South Africa

Experience:

Ivan leads Sage’s businesses across Australia, Africa, the Middle East and

Asia, which include some of Sage’s highest growth countries. Starting his

career at Price Waterhouse, Ivan then co-founded Softline in 1988 leading

it from start-up to a listing on the Johannesburg Stock Exchange in 1997.

Softline was delisted and acquired by Sage in 2003, when Ivan joined the

Executive Committee as CEO of the Southern Hemisphere, becoming

CEO of AAMEA in 2010. Amongst his accomplishments, Ivan has

been awarded the Ernst & Young “South Africa’s Best Entrepreneur”

accolade in 1999/2000 in recognition of his entrepreneurial attributes

and contribution to South African business. He was also awarded the

Computer Society South Africa “IT Personality of the Year” accolade in

2009 for his contribution to the IT sector.

Santiago Solanas (46)

Chief Marketing Officer

Based: Spain

Experience:

Santiago has recently been appointed as Group CMO, after seven years

with Sage. He has been CEO of Sage Spain for the past four years,

renewing the leadership team, restructuring the business, increasing its

efficiency and returning it to growth in difficult economic circumstances in

Spain. During this time he has also been the Accountants Segment leader

for Europe and has led the brand roll-out for the region. He joined Sage in

2007 as Managing Director of the SSB division in Spain, after a career of

over 20 years in the IT and software industry, including brand, sales and

marketing management roles at Oracle, Microsoft and IBM.

Pascal Houillon (52)

Chief Executive Officer, North America and Brazil

Based: US

Experience:

Pascal leads Sage’s business in the USA, Canada and Brazil. From 1997

to April 2011 he was CEO of Sage France, where he was also responsible

for Belgium, Brazil, Switzerland and Morocco. Pascal joined Sage France

in 1989 and went on to become Regional Director and Sales Director,

before leading the Sybel business after it was acquired by Sage in 1995.

Starting his career as a systems analyst for UAP Insurance, Pascal

co-founded Sinequanon in 1987, providing business management

solutions to SMEs. He was also Vice President of Syntec, the French

software and IT association, for nine years.

Alvaro Ramirez (53)

Chief Executive Officer, Europe

Based: Spain

Experience:

Since January 2011 Alvaro has been responsible for Sage’s European

strategy, operations and business performance. Previously, as CEO of

Sage Spain, he grew the Spanish business both organically and through

acquisition, transforming it into a market-leading software company.

Alvaro joined Sage in 2003 after Sage acquired Grupo SP, which he

co-founded in 1989. He grew Grupo SP to become Spain’s leader for

entry-level business management software, with subsidiaries in Portugal

and across Central and South America.

Michael Robinson (53)

Company Secretary and Group Legal Director

Based: UK

Experience:

Michael joined Sage in 2002 as Company Secretary and Group Legal

Director. After reading Law at Oxford, Michael qualified as a solicitor

and spent 15 years at one of the UK’s largest law firms.

Klaus-Michael Vogelberg (49)

Chief Technology Officer

Based: UK

Experience:

Responsible for Sage’s global technology strategy and software

architecture, Klaus-Michael is also Acting Chief Technology Officer for

Sage Europe. From 2004 to 2007 he was R&D Director for Sage UK

& Ireland. Klaus-Michael joined us when Sage acquired the German

KHK Software group in 1997, where he was R&D Director and a partner.

A software entrepreneur, Klaus-Michael set up his first business aged

19 while studying aeronautical engineering and national economics.


Corporate governance report

Our Governance framework

Board

The role of the Board and its committees

Strategy development, growing shareholder value, oversight and control, and corporate governance

Our Board provides leadership to the business as a whole to drive it forward for the benefit, and having regard to the views, of its shareholders

and other stakeholders.

The Board is responsible for ensuring that an effective internal framework of systems and controls is put in place which clearly defines authority

and accountability and promotes success whilst permitting the management of risk to an appropriate level.

The Board sets the strategy for the business. It has delegated the authority to manage the business to Stephen Kelly, Chief Executive Officer,

who delegates specific responsibilities to members of the Executive Committee, including the development and implementation of strategy.

The Board also delegates other matters to Board committees and management as appropriate.

Audit Committee Nomination Committee Remuneration Committee


Executive Committee

The terms of reference of each

committee, which are reviewed

on an annual basis, can be

found on our website.

The Board and each committee

are satisfied that they receive

sufficient, reliable and timely

information in advance of meetings

and are provided with all necessary

resources and expertise to enable

them to fulfil their responsibilities

and undertake their duties in

an effective manner.

Board and Committee meetings and attendance

Director BoardAudit

CommitteeNomination Committee

Remuneration Committee

Donald Brydon 7/7 – 5/5 7/7

Guy Berruyer1 7/7 – – –

Stephen Kelly2 – – – –

Steve Hare3 5/5 – – –

Ruth Markland 7/7 5/5 5/5 7/7

Drummond Hall4 5/5 4/4 5/5 5/5

Jonathan Howell 6/7 5/5 5/5 7/7

Neil Berkett 6/7 5/5 5/5 7/7

Inna Kuznetsova5 3/3 3/3 4/4 4/4

Mark Rolfe6 1/1 1/1 – 2/2

Ian Mason7 1/1 1/1 – 2/2

Notes:

1 Retired from the Board on 5 November 2014.2 Joined the Board on 5 November 2014.3 Joined the Board on 3 January 2014.4 Joined the Board on 1 January 2014.5 Joined the Board on 6 March 2014.6 Retired from the Board on 30 November 2013.7 Retired from the Board on 30 November 2013.

Page 71 Page 76 Page 77

To oversee the Group’s

financial reporting, risk

management and internal

control procedures and the

work of its internal and

external auditors.

To review the composition

of the Board and plan for its

progressive refreshing with

regard to balance and

structure as well as

succession planning.

To determine the framework,

policy and levels of

remuneration and make

recommendations to the

Board on the remuneration

of the Chief Executive Officer,

Chairman, executive directors,

the Company Secretary

and senior executives.

Developing and implementing

strategy, operational plans,

budgets, policies and

procedures; monitoring

operating and financial

performance; assessing and

controlling risks; prioritising

and allocating resources; and

monitoring competitive forces

in each area of operation.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Chairman

Responsible for leading

the Board, its effectiveness

and governance

The Chairman is responsible for leading the Board, its effectiveness and governance and for monitoring

and measuring the implementation of strategy. The role of Chairman also carries a particular responsibility

to monitor and assess Sage’s corporate governance practices.

To ensure a proper dialogue with directors, the Chairman holds meetings with the non-executive directors

without the executive directors to assess their views. In addition, the non-executive directors have met

without the Chairman present to appraise the Chairman’s performance. These meetings without the

Chairman are chaired by the Senior Independent Director.

The Chairman also ensures that shareholder engagement is discussed at each meeting of the Board and

that all shareholders have access to the non-executive directors, through a request to the Chairman or the

Company Secretary.

Board roles


Responsible for the

formulation of strategy

and running of the Group

The responsibilities of the Chief Executive Officer include:

– the design, development and agreement of strategy with the Board

– implementation of the strategy and policy and the running of the Group

– managing the overall performance of Sage, concentrating on revenue and profitability as well as

capital expenditure

The Chief Executive Officer also identifies acquisitions and monitors competitive forces, as well as ensuring

an effective and motivated leadership team.

The Chief Executive Officer chairs the Executive Committee and maintains a close working relationship with

the Chairman.

Senior Independent Director

Discusses any concerns

with shareholders

that cannot be

resolved through

the normal channels

of communication

The role of Senior Independent Director is:

– To provide a point of contact for those shareholders who wish to raise issues with the Board, other

than through the Chairman

– Together with the other independent non-executive directors, to evaluate the performance of

the Chairman

The Senior Independent Director is available to consult with shareholders.

Company Secretary

Ensures good information

flows to the Board and its

committees and between

senior management and

non-executive directors

The Company Secretary is available to all directors to provide advice and assistance, and is responsible

for providing governance advice to the Board.

The Company Secretary ensures Board procedures are complied with, that applicable rules and regulations

are followed and acts as secretary to the Board and all of the committees. Minutes of all meetings are

circulated to all directors. He facilitates the induction of new directors and assists with professional

development as required.

The appointment and removal of the Company Secretary is a matter for the Board as a whole.

The roles of the Chairman and the Chief Executive Officer are quite distinct from one another and are clearly defined in written terms of reference for

each role. These terms of reference are available on our website.


Corporate governance report continued

Focus of the Board for the year

In the year under review, the Board’s focus has been on strategy and

ensuring that the structures, capabilities and reports are in place to

support the Group strategy. The Board has received regular reports

from both the Chief Executive Officer and the Chief Financial Officer.

In particular, in response to continued external changes discussed in

the Strategic report, time has been spent considering:

– The move to cloud solutions and to a subscription-based customer

relationship, including consideration and review of competitor

activity in these areas

– The Payments businesses and external factors impacting

their future

Actions taken to minimise the major risks faced by Sage, as described

on pages 40 to 43, have also been regularly discussed and the Board has

looked at succession issues, particularly in light of recent and ongoing

changes within our executive teams.

The Board has formally adopted a schedule of matters reserved to it

for decision. This schedule is reviewed on an annual basis, was last

reviewed on 25 September 2014 and is available via our website.

The Board meets not less than six times per year. During this year, it met

seven times.

Board composition

The Board is made up of the Chairman, Chief Executive Officer, Chief

Financial Officer and five independent non-executive directors. In order to

evolve and develop not just our Board, but also our business, a number

of changes were made to the Board during the year.The directors have

a range of experience and can bring independent judgement to bear on

issues of strategy, performance, resources and standards of conduct.

This experience and judgement is considered vital to our success. It is

the balance of skills, experience, independence and knowledge of those

directors which ensures the duties and responsibilities of the Board and

its committees are discharged effectively.

The Board carefully monitors the independence of its non-executive

directors, particularly those who have given long service. Having reviewed

the current Board, the non-executive directors are all considered to be

independent. Donald Brydon was considered independent at the date

of his appointment.

All directors are subject to election or re-election by shareholders at each

Annual General Meeting.

Diversity

The Board has due regard for the benefits of diversity in its membership,

and strives to maintain the right diversity balance. The Chairman seeks

to ensure that the composition of the Board includes individuals with

deep knowledge and experience, bringing a wide range of perspectives

to the business.

Sage continues to support the aims and objectives of The Davies Report

on Women on Boards. The Board, as at the date of this Annual Report

& Accounts, comprises 25% women (2013: 14%). The Board must

continue to provide strong leadership at Sage, and, therefore, continues

to appoint only the most appropriate candidates to the Board.

Whilst applying this policy in the Group, no measurable objectives have

been set. Further details of our policies in this area are set out on page 54.

Conflicts of interest

The Board operates a policy to identify and, where appropriate, manage

conflicts or potential conflicts of interest. At each Board meeting, the

Board considers a register of interests and potential conflicts of directors

and gives, when appropriate, any necessary approvals. There are

safeguards which will apply when directors decide whether to authorise a

conflict or potential conflict, with only those directors who have no interest

in the matter taking the decision. No conflicts of interest have been

identified during the year.

Board effectiveness

The Board has adopted a written set of objectives for the financial year,

against which it assesses progress at each meeting. This ensures that the

Board focuses on key issues relevant to Sage and can monitor progress

in all these areas.

Tenure

Gender

Male 75%

Female 25%

2014

2014

Executive/Non-executive

0–2 years 75%

3–6 years 12.5%

7–9 years 12.5%

Executive 25%

Non-executive 75%

2014

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Board and committee papers which are clear, focused and relevant

ensure that the Board has the information it needs to consider the issues

relevant to the business. The papers are issued on a timely basis to

ensure that the Board and its committees have ample time to consider

and digest their contents and that the Board has the information it needs

to discharge its duties. Regular attendance at Board meetings by key

executives ensures that the Board has the opportunity to discuss the risks

and opportunities within our business with leaders from across the Group.

Performance evaluation

The Board recognises the importance of reviewing its practices and

performance on a regular basis and has evaluated its performance

and that of its committees and individual members. In the past,

the Board evaluated its performance in a number of different ways

including detailed questionnaires and discussions between individual

directors and the Chairman. In this financial year, the Board used

an independent third party, Dr Rob Goffee, Emeritus Professor of

Organisational Behaviour at the London Business School, to undertake

the review. Dr Goffee has no other connection with Sage. Each director

completed a detailed questionnaire relating to the Board, its role and

the interaction of its members. This questionnaire was then used as

the basis for individual interviews with each director.

The results and outcomes of the review were discussed by the Board

as a whole, both with and without Dr Goffee present. Key topics during

these discussions included board composition, diversity including gender

diversity, the pattern of Board meetings, risk, shareholder engagement

and succession. As a result, new Board objectives have been set, taking

into account the findings from the review. In addition to the Board

review, the Chairman’s performance was evaluated by the Senior

Independent Director through correspondence and discussion with

the Chairman and the other independent non-executive directors

and was found to be effective, having regard to his continued time

commitment to his role.

Induction and professional development

To ensure a full understanding of Sage is developed, new Board

members undergo a full, formal and tailored induction programme.

During the year, Drummond Hall and Inna Kuznetsova received such

an induction, which included:

– A full day meeting a team of our senior executives at a Group

and operating company level

– Visits to our business in the US and meetings with the heads of

the European business

– Bespoke training as deemed necessary based on individual needs

To assist the Board in undertaking its responsibilities, training is available

to all directors and training needs are assessed as part of the Board

evaluation procedure. All directors have access to the advice and services

of the Company Secretary who ensures that directors take independent

professional advice when it is judged necessary in order to discharge

their responsibilities as directors.

Board meetings are held at our operating companies both inside and

outside the UK. Non-executive directors also visit our overseas operations

on a regular basis. This provides the Board and individual non-executive

directors with the opportunity to broaden their understanding of Sage

and the key markets in which we operate.

“This three step process – questionnaire, interview and board discussions – has allowed a full review of Board capabilities, operation and governance. Content and process issues have been addressed both for the Board and its individual members.”

— Dr Rob Goffee, Emeritus Professor of Organisational

Behaviour at the London Business School

Risk management and internal controls The system of internal controls and risk management is designed to

meet our particular needs and to address the risks to which our business

is exposed. By its nature, this system can only provide reasonable,

not absolute, assurance against material misstatement or loss and it is

designed to manage rather than eliminate the risk of failure to achieve

business objectives.

The Board is responsible for the Group’s system of internal controls.

The effectiveness of the system of internal controls and risk management

is regularly reviewed by the Board, in compliance with the UK Corporate

Governance Code, and such a review was undertaken during the year.

Risk management

There is an ongoing process to identify, evaluate and manage our

significant risks, as set out on pages 40 to 43. This process is considered

to be an integral part of the internal controls environment and is managed

on a day-to-day basis by the Group Risk and Assurance Director. This

process was in place for the year under review and up to the date of the

approval of the report.

The risk management process is set to ensure risks are identified from a

top down/strategic perspective as well as a bottom up/local perspective.

Facilitated risk workshops are undertaken with the Executive Committee

and at each of the major territories within the Group. Results from risk

management activities are reported to and discussed directly with the

Executive Committee, the Audit Committee and the Board.

Internal controls

Financial reporting

As part of the internal controls processes, we have specific procedures

and systems to govern financial reporting. The requirements for

presenting financial information are governed by the Group Accounting

Manual, against which the external auditors review the financial

statements. Financial control requirements are set out in a Financial

Controls Policy, which is subject to annual internal audit reviews. Any

part of the Group not subjected to an internal audit review of financial

controls in any given year is required to self-assess and self-certify on

the effectiveness of their financial control environment.


Risk management and internal controls continued

Whistleblowing

A whistleblowing telephone hotline service operates in most of our

operating companies, allowing employees to raise concerns in relation

to dishonesty or malpractice on an entirely confidential basis. The

Audit Committee receives regular reports on any matters raised through

these services and monitors the use throughout the Group.

Quality and integrity of personnel

The integrity and competence of personnel is ensured through high

recruitment standards and the provision of subsequent training and

development. High quality personnel are seen as an essential part

of the control environment.

Management structure

A clearly defined organisational structure exists within which individual

responsibilities are identified and can be monitored. The management

of the Group as a whole is delegated to the Chief Executive Officer and

the Executive Committee, as discussed on page 66. Within the Group

team there are a number of central administrative functions such as

Group Treasury, Corporate Communications and Group Legal. These

functions report to the Board through its executive members and the

members of the Executive Committee.

A number of Group-wide policies, issued and administered centrally,

have been set to ensure compliance with key governance standards.

These policies cover areas such as finance, data protection and

mergers and acquisitions.

The conduct of Sage’s individual businesses is delegated to the local

executive management teams. Details of the authority delegated to local

and regional management are set out in a delegation of authority matrix

which is communicated to management throughout Sage. These teams

are accountable for the conduct and performance of their businesses

within the agreed business strategy. They have full authority to act subject

to the reserved powers and sanctioning limits laid down by the Board

and to Group policies and guidelines.

Budgetary process

A comprehensive budgeting system is in place, with annual budgets

for all operating companies being approved by respective local boards.

Subsequently the combined budget is subject to consideration and

approval by the Board. Management information systems provide

the directors with relevant and timely information required to monitor

financial performance.

Investment appraisal (including acquisitions)

Budgetary approval and defined authorisation levels regulate capital

expenditure. As part of the budgetary process the Board considers

proposals for research and development programmes. Acquisition

activity is subject to internal guidelines governing investment

appraisal criteria, financial targets, negotiation, execution and

post-acquisition management.

Monitoring and review

There are processes in place to monitor the system of internal controls

and to report any significant control failings or weaknesses and planned

mitigating actions. These processes include:

– On an ongoing basis, the Sage operating companies certify that

Sage’s policy requirements have been received and understood

– Management representations covering compliance with relevant

policies and the accuracy of financial information are collated on

an annual basis

Internal audit

Internal audit activities are provided by an in-house team supplemented

under co-source agreements by third-party providers. The role of Head

of Internal Audit is undertaken by the Group Risk and Assurance Director

who has a direct reporting line to the Audit Committee and its Chair in

order to ensure independence.

Internal audit’s role is to advise management and the Board on the extent

to which systems of risk management and internal controls are effective.

The internal audit plan is determined through a structured process of risk

assessment and the scope of work provides assurance over both key

risks and our main business functions.

The internal audit plan is flexed as necessary during the year to take into

account any key business changes. During this year, key areas reviewed,

over and above financial, HR and IT controls, were the provision of online

services, information security, storage of source code and compliance

with external regulatory and internal policy requirements. The full plan was

delivered during the year and the results were in line with expectations.

Relations with shareholders

Communication with shareholders is given high priority. A full Annual

Report & Accounts is sent to all shareholders who wish to receive one

and all information on Sage’s activities, published financial results and

the Annual Report & Accounts can be found on our website. There is

regular dialogue with individual institutional shareholders and there are

presentations to analysts after our announcement of the year-end and

half-year results.

At each meeting, the Board receives an update on presentations to

investors and communications from shareholders to ensure that the

Board has an understanding of their views. The Annual General Meeting

is used to communicate with private and institutional investors and the

Board welcomes their participation.

Information included in the Directors’ report

Certain information, fulfilling certain requirements of the Corporate

Governance Statement, can be found in the Directors’ report and is

incorporated into this Corporate governance section by reference.

For reference, relevant sections of the Director’s report are:

– Substantial shareholdings

– Deadlines for voting rights

– Repurchase of shares

– Amendment of the Company’s articles of association

– Appointment and replacement of directors

– Powers of the directors

By order of the Board

M J Robinson, Company Secretary

3 December 2014

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Audit Committee

“Our work continued to focus on the appropriateness of the Group’s financial reporting, the rigour of external and internal audit processes, the Group’s management of risk and its systems of internal control. We also conducted a tender for the Group’s statutory audit which resulted in the proposal to shareholders to confirm the appointment of Ernst & Young LLP as Group auditors for the 2015 financial year. We provide more detail on these activities on the next pages.”

Audit Committee Membership:

– Jonathan Howell – Chair

– Neil Berkett

– Drummond Hall

– Inna Kuznetsova

– Ruth Markland

Key objective

To oversee Sage’s financial reporting, risk management and internal

control procedures and the work of its internal and external auditors.

Committee meetings

All members of the Committee attend each meeting. In addition, meetings

are usually attended by the Chairman, the Chief Executive Officer, the

Chief Financial Officer, the Company Secretary, the Director of Finance

and the Group Risk and Assurance Director. Other senior executives

attend as required to provide information on matters being discussed

which fall into their area of responsibility. The external auditors also

attend each meeting. During the year, the Committee meets individually

with the external auditors without executives present, the Chief Financial

Officer and the Group Risk and Assurance Director. During the year, the

Committee met five times – four in accordance with its terms of reference

and an additional meeting on the external audit tender.

Relevant financial experience

Jonathan Howell is Chair of the Audit Committee and, as a member

of the Institute of Chartered Accountants in England and Wales and

the Chief Financial Officer of a FTSE 250 company, is considered by

the Board to have the recent and relevant experience required by the

UK Corporate Governance Code 2012. All the other members of the

Committee are independent non-executive directors who have a wide

range of relevant business experience.


Corporate governance report continuedAudit Committee continued

Responsibility Activity in the year

To review and advise the Board on:

The interim and annual financial statements, the accounting

policies used and on the significant issues in relation to the

financial statements

The Committee reviewed the interim and annual financial statements

and reported to the Board on the appropriateness of the accounting

policies and practices adopted. As part of this review, the Committee

considered the significant issues in relation to the financial statements

and received reports from the Group finance team and the external

auditors on the Annual Report & Accounts

Whether the Annual Report & Accounts taken as a whole is

fair, balanced and understandable

The Committee reviewed the results of processes put in place to

provide assurance on this aspect. The processes included the review

and assessment of the Annual Report & Accounts by management

and internal and external audit

The effectiveness of the internal control environment and risk

management procedures, including whistleblowing procedures

The Committee considered reports produced by the Risk and

Assurance team during the year and at the year-end as set out

on page 74

The nature and extent of significant financial and business risks

to Sage and the mitigation of these risks

The Committee received and discussed detailed Group risk update

reports during the year. In addition, the Committee allowed time for

in-depth reviews of particular risk and finance areas. During the year,

these areas considered included IT and data security, the future

development of the finance function across the Group and risks

specific to our Payments businesses

In addition, the Committee is responsible for:

Reviewing and approving the nature and scope of external and

internal audit work, the results of that work and management’s

related responses

The Committee considered and approved the planned activities of

internal audit along with the scope of the external audit for the year.

Regular reports were received from internal and external audit and

discussed by the Committee

Setting and monitoring compliance with the policy on

non-audit services

The policy on non-audit services was updated and approved by the

Committee during the period. Compliance with the new policy was

confirmed during the year

Ensuring the external auditors are effective and independent The Committee considered the independence of the external auditors

and the effectiveness of the external audit process as set out on

page 75

Making recommendations to the Board on external auditors’

remuneration and appointment

The Committee conducted a formal tender process during the

2014 financial year with details of the process undertaken and

the recommendations made provided on page 75

Financial reporting

The Committee reviewed and considered the following areas in respect of financial reporting and the preparation of the interim and annual

financial statements:

– The appropriateness of accounting policies and practices

– Compliance with external financial reporting standards and relevant statutory requirements

– Significant judgements made, as set out in more detail below

– Disclosure and presentation in the financial statements

– Whether the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary

for shareholders to assess Sage’s performance, business model and strategy

The Committee considered the work, judgements and conclusions of the Group finance team and received reports from the external auditors setting

out their view on the accounting treatments included in the financial statements. The external auditors’ reports are based on a full audit of the annual

financial statements and a review of the interim financial statements.

Processes are in place to ensure that assurance can be provided on whether the Annual Report & Accounts is considered to be fair, balanced

and understandable. The Committee receives drafts and working papers relating to the Annual Report & Accounts in order to facilitate its review and

input. Management representations, external and internal audit reviews have also taken place to provide this assurance to the Audit Committee and

the Board.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Matter considered Action

Revenue recognition

The key area of judgement and complexity is the timing

of revenue recognition, particularly in relation to the

recognition and deferral of revenue on maintenance

and support contracts, for instance, where products

are bundled

– The Committee considered a revenue recognition paper prepared by

management which set out the basis of the implementation of the accounting

policies and practices in this area. It also confirmed that no changes to the fair

value allocation methodology had been made in the current year. The paper

also incorporated the benchmarking of accounting policy application by each

operating unit

– Revenue recognition is an area of focus for PricewaterhouseCoopers

who performed detailed audit procedures and reported on their work

to the Committee

Goodwill impairment testing

Goodwill is an area of focus for the Committee given

the materiality of the Group’s goodwill balances and

the evolution of Sage’s business model as it continues

to execute its strategy. The judgements in relation to

goodwill largely relate to the assumptions applied in

calculating the value in use of the Cash Generating Units

(“CGUs”) and the ongoing appropriateness of the CGUs

being used for the purpose of impairment testing

– The Committee reviewed and considered a detailed report from management

on the work undertaken and the assessments made in relation to the

impairment testing of goodwill. The report considered the determination

of CGUs, the future performance expectations of the businesses concerned

and the discount rates applied to future cash flow forecasts

– The Committee also reviewed the assumptions underpinning the impairment

of the goodwill relating to the business in Brazil. The Audit Committee reviewed

and challenged the sensitivity analysis including the macroeconomic

environment and cost of capital assumptions used

– This was an area of focus for PricewaterhouseCoopers, who reported

their findings and assessment to the Committee

Archer litigation

The claim for damages made by Archer Capital in relation

to the potential purchase of MYOB, which continues to

be strongly rejected by management, continued to be

considered in the current year

– The Committee received a report from management on the status

of the litigation and an update from the Group Legal Director on any

new or relevant legal considerations

– PricewaterhouseCoopers discussed the matter with management,

the Group Legal Director, and external legal counsel and reported

their findings and assessment to the Committee

Tax provisions

The Group recognises certain provisions and accruals in

respect of tax which involves a degree of estimation and

uncertainty for certain items whose tax treatment cannot

be finally determined until a resolution has been reached

with the relevant tax authority

– The Committee received a report from management detailing the key risks

against which provisions had been made and the methodologies used to

determine the appropriate level of each provision based on advice from

our external tax advisors

– This was also an area of focus for PricewaterhouseCoopers, who reported

on their work and assessment to the Committee

Significant issues

The significant issues considered by the Committee were as follows:


Corporate governance report continuedAudit Committee continued

Risk management and internal controls

The Group has a clear organisational structure for the control and

monitoring of its business. The Committee reviews the framework

of internal controls and the processes by which the Group’s control

environment is evaluated, the effectiveness of the internal controls

environment and risk management procedures, including

whistleblowing procedures.

In this regard, the Committee received reports from internal audit on

the operation of, and issues arising from, the Group’s internal controls

and procedures. External audit has also provided input and observations

on the internal control environment.

Risk management

The Committee reviews the Group’s risk management framework in

order to ensure it is appropriate and operating effectively. In doing so,

the Committee received reports from the Group Risk and Assurance

Director, covering:

– Risk appetite

– The effectiveness of the risk management processes and their

adoption across the Group

– A summary of the most critical risks to the Group, controls identified

to mitigate these risks and actions planned to reduce risks where

considered necessary

The Board has an ongoing process to identify, evaluate and manage the

significant risks faced by the Group, details of which can be found on

pages 40 to 43.

As part of its agenda, the Committee allowed time for in-depth reviews

of particular risk areas. During the year, the risk areas considered were

IT and data security, the future development of the finance function and

risks specific to our Payments businesses.

Whistleblowing and incident reports

The Audit Committee receives regular reports on any matters reported

through the whistleblowing process.

The Group operates whistleblowing telephone hotline services in many

of its operating companies, including those in the UK and US which,

together with confidential reporting systems in other operating companies,

allow employees to report matters of concern on a confidential basis.

In reviewing whistleblowing, fraud and incident reports, the Committee

assesses the cause of the particular incidents, along with actions

taken to resolve and prevent recurrence. The Committee also reviewed

compliance activities in relation to the Group’s policies and received

a report on the status of compliance with these policies.

Taxation

The Committee received a report during the year from the Group Tax

Director on the Group’s tax policy, approach to tax management and

status of compliance. Any tax issues requiring significant judgement were

presented to, and reviewed by, the Board or a designated committee.

Internal audit

The Committee monitored and reviewed the scope and results of internal

audit’s activities including the quality and timeliness of management

responses. The annual internal audit plan is approved by the Committee

at the beginning of the financial year, with any subsequent changes to the

plan requiring Committee approval. Progress against the plan is monitored

throughout the year. Significant issues identified within audit reports are

considered in detail by the Committee along with the appropriateness of

mitigation plans to resolve those issues.

An internal audit charter is in place which outlines the objectives,

authority, scope and responsibilities of internal audit. Performance

against this charter, and the effectiveness of internal audit, is reviewed

by the Committee on an annual basis.

The Committee also considers and evaluates the level of internal

audit resource to ensure it is appropriate to provide the required level

of assurance over the key risks, processes and controls throughout

the Group.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

External audit

The Committee reviews and makes recommendations with regard to

the appointment of the external auditors. In making this recommendation,

the Committee considers auditor effectiveness and independence,

partner rotation and any other factors which may impact the external

auditors’ reappointment.

Competitive tender process

During the year the Committee conducted a formal tender for the

proposed appointment of a new external audit firm for the 2015 financial

year. The Committee appointed a selection panel to undertake much of

the detailed work and invited three of the Big Four firms to tender.

PricewaterhouseCoopers LLP had been external auditors since 1988

and no formal tender process had taken place since that appointment.

Therefore, by mutual agreement, it was agreed that they would not be

invited to participate in the tender process.

In the process, the tendering firms met with senior finance management

across the Group and submitted detailed written proposals before

presenting to the selection panel. The selection panel and Committee

assessed the firms against key criteria and recommended to the

Board that Ernst & Young LLP be appointed as auditors to Sage for

the financial year ending 30 September 2015. The criteria used to reach

this decision included:

– The quality of the central team

– Commitment to sharing ideas and insights on best practice

developments in accounting and reporting

– Capability to provide comprehensive and high quality

audit services

– Approach to ensuring a smooth transition process

– Approach to tender process

– Independence and quality of the team

Accordingly, a resolution proposing the appointment of Ernst & Young

LLP as our auditor will be put to shareholders at the AGM in March 2015.

Effectiveness of the external audit process

The Committee also monitored the conduct and effectiveness of external

audit during the year through review of:

– Experience and expertise of the auditors

– The fulfilment of the agreed audit plan and any variations from

this plan

– The robustness and perceptiveness of the external auditors

in their handling of key accounting and audit judgements

– Interaction between management and the auditors, including the

dedication of sufficient time by management to the audit process

– Communication with, and support to, the Committee

– Insights, added value and reports

– The content of the external auditors’ report

– Independence, objectivity and scepticism

Private meetings were held with the external auditors at two of the

Audit Committee meetings to provide additional opportunity for open

dialogue and feedback from the Committee and the auditors without

management being present.

Independence and the provision of non-audit services

In order to ensure the independence of the external auditors, the

Committee received a formal statement of independence from the

external auditors. In addition, the Committee ensured compliance

with Sage’s Auditor Independence Policy, the principal requirements

of which are:

– The external auditors may not undertake certain prohibited services,

which include taxation compliance and planning, acquisition due

diligence, internal audit services, remuneration and compensation

services and legal and actuarial advice

– The Committee must approve any individual non-audit services

above a specific fee value

– The ratio of audit fees to non-audit fees must be within Sage’s

pre-determined ratio, which is currently 70% of the average of the

external audit fees billed over the previous three years

This policy was updated during 2014 to take into account recent

changes in EU regulation. The implementation of the policy was

effective from the beginning of the 2015 financial year.

The Committee believes that it receives particular benefit from certain

non-audit services provided by the external auditors due to their wide

and detailed knowledge of Sage. Discretion is therefore used, subject

to the controls set out above, in obtaining such services from the

external auditors, although other accountancy firms are also used

when appropriate. During the year, non-audit services obtained from

the external auditors included tax compliance (prior to the updating

of the Auditor Independence Policy) and advice and support relating

to corporate restructuring.

The total audit fees charged by the auditors during the year were £2.1m

and the amount of non-audit fees was £1.0m. The ratio of non-audit fees

for the year to the average of the external audit fees over the previous

three years was 48%. A breakdown of total audit and non-audit fees

charged by the auditors for the year under review is shown in note

3.2 to the financial statements.

Jonathan Howell

Chairman of the Audit Committee

3 December 2014


Corporate governance report continuedNomination Committee

“This year saw changes in both executives and non-executives. The Committee ran a robust and wide-ranging process, resulting in key appointments to strengthen the Board’s existing skills.”

Nomination Committee Membership:

– Donald Brydon – Chair

– Jonathan Howell

– Neil Berkett

– Drummond Hall

– Inna Kuznetsova

– Ruth Markland

Key objective

To review the composition of the Board and to plan for its progressive

refreshing, with regard to balance and structure. The Committee also

considers issues of succession.

Committee meetings

The Committee is required, in accordance with its terms of reference,

to meet at least once per year. During the year, the Committee met

five times.

Responsibility Activity in the year

Reviewing the structure of the Board The Committee dealt with the appointment of a new Chief Executive Officer and the appointment

of two non-executive directors, with further detail provided below on the process undertaken

Evaluating the balance of skills,

knowledge, experience and

diversity of the Board

The Committee considered the skills, knowledge, independence and experience of the Board and

reaffirmed the approach to diversity, as described on page 54

Advising the Board on areas where

further recruitment may be appropriate

The Committee considered the skills and experience of the Board members, resulting in

new appointments to non-executive roles. It continues this review on an ongoing basis

Succession planning for key

executives at Board level and below

Whilst there have been several Board appointments during the current year, the Committee

has continued to work to ensure appropriate succession and mix amongst both the executive

and non-executive directors, as shown on page 53

Board appointments

In identifying a new Chief Executive Officer, the Committee retained the

services of executive search consultants, Egon Zehnder. Egon

Zehnder worked closely with the Chairman who led the process

on behalf of the Committee.

A number of potential candidates were identified by the consultants and

some candidates approached Sage directly. An initial long list of possible

appointees was discussed with the Chairman, from which a shortened

list was created. All candidates on the shortened list were interviewed

by Committee members. Following the interviews and fully considering

the experience and skills of the candidates, as well as the diversity of

the Board, the Committee unanimously recommended the appointment

of Stephen Kelly as Chief Executive Officer to the Board.

In identifying new non-executive directors, the Committee retained

the services of The Zygos Partnership and Egon Zehnder as search

consultants. Taking into account the diversity of the Board, a number

of potential candidates were identified who all met the Committee.

Drummond Hall’s wealth of experience in large, listed companies and

knowledge of marketing issues within those companies were seen by

the Committee as of particular interest. Inna Kuznetsova’s international

experience and knowledge of the technology industry made her

an exceptional candidate in the view of the Committee.

The Zygos Partnership and Egon Zehnder have no connection with Sage

or the appointed directors other than for the provision of these services.

As described in our report for the previous financial year, in identifying a

potential new Chief Financial Officer, the Committee retained the services

of Russell Reynolds as search consultants. The search resulted in the

appointment of Steve Hare as Chief Financial Officer. Russell Reynolds

have no connection with Sage or the appointed directors other than for

the provision of these services.

Donald Brydon

Chairman of the Nomination Committee

3 December 2014

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

Go

vern

an

ce


Directors’ remuneration report

Remuneration Committee Membership:

– Ruth Markland – Chair

– Donald Brydon

– Jonathan Howell

– Neil Berkett

– Drummond Hall

– Inna Kuznetsova

“We align our performance measures to our strategy and continue to reinforce alignment with our shareholders through the application of our remuneration policy.”

Key objective

To determine the framework, broad policy, and levels of remuneration for

the Group’s Chief Executive Officer (“CEO”), the Group’s Chief Financial

Officer (“CFO”), the Chairman of the Company and other executives

as deemed appropriate. This framework includes, but is not limited to,

establishing stretching performance-related elements of reward and is

intended to promote the long-term success of the Company.

Committee meetings

No one other than a member of the Committee is entitled to be present

at its meetings. The CEO may, as required, attend meetings, except

where his own performance or remuneration is discussed. No director

is involved in deciding his or her own remuneration.

The Committee is required, in accordance with its terms of reference, to

meet at least four times per year. During this financial year, the Committee

met seven times.

Key Responsibilities

Making recommendations to the Board, within agreed terms of reference, on Sage’s framework of executive remuneration

Determining the contract terms, remuneration and other benefits for each of the executive directors, including performance share awards,

performance-related bonus schemes, pension rights and compensation payments

Monitoring remuneration for senior executives below Board level

Approval of share awards

Dear fellow shareholder, It is my pleasure to present the Directors’ remuneration report for the

year ended 30 September 2014.

We aim to be entirely transparent in our remuneration practices and

provide shareholders with the information needed to make informed

decisions about our Company. We have sought to develop our

disclosure further in this year’s report and hope that you find this useful.

Our remuneration principles for executive directors and the Executive Committee

Our remuneration principles, which our detailed policy supports,

are as follows:

– We offer competitive and fair rates of pay and benefits to attract and

retain the best people

– We aim to create a strong performance-oriented environment and

reward achievement of our Company strategy and business

objectives

– Pay and employment conditions elsewhere in the Group are

considered when determining executive base and bonus reviews

– The interests of our senior management team are aligned with those

of shareholders by having a significant proportion of remuneration

performance-based and delivered through shares


Remuneration policy

Our remuneration policy remains unchanged from last year, having

been approved at the 2014 Annual General Meeting. We operate a

remuneration structure made up of base salary and benefits, a bonus

plan and a long-term incentive plan, which provides a clear link between

pay and our key strategic priorities.

Our remuneration policy is guided by a common reward framework.

Reward policies

Attract and retain. Remuneration packages are designed to attract

high-calibre executives in a competitive international market which

includes private-equity backed organisations as well as listed companies,

and to remunerate executives fairly and responsibly.

Motivate and reward. Remuneration is designed to motivate delivery

of our key business strategies, create a strong performance-orientated

environment and reward achievement of meaningful targets over the

short and long term.

Reward principles

Alignment with the wider Group. The remuneration policy for

executives reflects the overriding remuneration philosophy and principles

of the wider Group considering pay and employment conditions

elsewhere in the Group.

Stretching performance targets. The Remuneration Committee

considers that a successful remuneration policy links a significant part

of the remuneration package to the achievement of stretching corporate

performance targets and a strong alignment of interest with shareholders.

We believe that the policy as a whole is well aligned to the current

business strategy and the outcome reflects business performance.

Activities of the Remuneration Committee (“the Committee”)

The main activities of the Committee since the last report were as follows:

– Reviewed the performance of the Group for the year, and the

performance of the executive directors in order to determine

bonus outcomes

– Approved share awards for 2014

– Confirmed the overall package including a one-off share award

for the incoming CEO

– Agreed the remuneration arrangements for the outgoing CEO

– Set base salaries and established the executive directors’ bonus

arrangements for 2015

– Reviewed the Directors’ remuneration report

– Considered remuneration market trends and corporate

governance developments

– Approved the base salaries for 2015 and the 2014 bonuses

of seven Executive Committee members

– Proposed new LTIP

Remuneration for 2014

Sage continued to deliver on its three-year strategy for accelerated

growth, with a view to doubling the long-term historic average organic

growth rate from 3% to 6% by the end of the 2015 financial year.

In summary, for the year ended 30 September 2014, Group organic

revenue growth was 5%, reflecting good acceleration in growth on

the prior year and underlying pre-tax profit was £340m. In addition,

underlying operating profit margin increased to 27.5%. Combined

with the achievement of strategic objectives, this resulted in 55% and

57% of the maximum bonus opportunity for 2014 paying out for the

CEO and CFO respectively.

Details of the remuneration decisions for 2014 are set out in the

Directors’ annual remuneration report on pages 83 to 92.

Remuneration for 2015

We are delighted that Stephen Kelly joined us as CEO from 5 November

2014. Details of his remuneration are set out on page 87. Base salaries

and bonus measures for 2015 have been established for both the new

CEO and the CFO.

Guy Berruyer will continue to be employed by the Company until 31

March 2015 although he stepped down from the role of CEO and as a

director of the Company on 5 November 2014. During his employment,

Mr Berruyer will continue to receive his normal base salary and benefits,

but will not be eligible for a bonus or housing allowance for the period

from 5 November 2014. During this period, he will be available to assist

the new CEO as required.

The revised UK Corporate Governance Code was published just

before the start of the financial year commencing on 1 October 2014.

Consequently, there was insufficient time for the Committee to consider

and set a suitable policy for the application of malus and clawback

in relation to annual incentives for the performance year starting on

1 October 2014. The Committee plans to review in detail and develop

a suitable policy for application to future performance periods.

Directors’ remuneration report continued

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Performance Share Plan – key changes

The current Performance Share Plan rules expire on 15 March 2015.

The new rules will be put to shareholders for approval at the AGM.

The key changes to the plan are as follows:

Introduction of malus and clawback provisions, allowing the Committee

to exercise discretion to reduce the level of unvested awards or reclaim

(within three years of release) previously paid awards. Circumstances

where the Committee may elect to apply this discretion include a material

misstatement of the Group’s audited results or a material failure of risk

management or serious reputational damage to the Group or a business

unit as a result of the participant’s misconduct.

Committee discretion to grant awards subject to a holding period. Where

a holding period is attached to an award, the default holding period is two

years. The Committee does not intend to apply a holding period to PSP

awards granted in 2015 but will keep the application of this provision

under review for future grants.

Remuneration disclosure

This report complies with the requirements of the Large and Medium-

sized Companies and Groups Regulations 2008 as amended in 2013,

the provisions of the UK Corporate Governance Code (September 2012)

and the Listing Rules.

The report is in two sections:

– A summary of the Directors’ remuneration policy report

(pages 80 to 82). This section contains details of the remuneration

policy approved at the 2014 AGM and is for information only

– The Directors’ annual remuneration report. This section sets

out details of how our remuneration policy was implemented for the

year ended 30 September 2014 and how we intend for the policy

to apply for the year ended 30 September 2015 and is the subject

of an advisory shareholder vote

At the AGM in March 2015:

– The renewal of the Performance Share Plan will be put to a binding

shareholder vote

– The Directors’ annual remuneration report will be put to an advisory

shareholder vote

Ruth Markland

Chairman of the Remuneration Committee


Summary of Directors’ remuneration policy report

The remuneration policy was approved at the AGM in March 2014. Provided for information only are details of the policy that were referenced in

Committee activities over the past reporting year which includes the Remuneration policy table, minimally updated, below, and the recruitment

remuneration arrangements, executive director service contracts and terms and conditions for non-executive directors. The full policy report,

as approved by shareholders, can be found in last year’s remuneration report, a copy of which can be found in the Investor Relations section

at www.sage.com.

Remuneration policy table

The Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with the

policy set out below, where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual was

not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of the

Company. For these purposes, “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares,

the terms of the payment are “agreed” at the time the award is granted.

Alignment with strategy/purpose Operation Maximum opportunity Performance measures

Base salary

Supports the recruitment and

retention of executive directors

of the calibre required to deliver

the Group’s strategy.

Rewards executives for the

performance of their role.

Set at a level that allows

fully flexible operation of our

variable pay plans.

Normally reviewed annually, any increases

generally apply from January.

When determining base salary levels,

consideration is given to the following:

– Pay increases for other employees in major

operating businesses of the Group

– The individual’s skills and responsibilities

– Pay at companies of a similar size and

international scope to Sage, in particular those

within the FTSE 100 (excluding the top 30)

– Corporate and individual performance

Ordinarily, salary increases will be in

line with increases awarded to other

employees in major operating

businesses of the Group.

However, increases may be made

above this level at the Committee’s

discretion to take account of individual

circumstances such as:

– Increase in scope and responsibility

– Increase to reflect the individual’s

development and performance in role

(e.g. for a new appointment where

base salary may be increased over time

rather than set directly at the level of

the previous incumbent or market level)

– Alignment to market level

None, although overall

performance of the individual is

considered by the Committee

when setting and reviewing

salaries annually.

Pension

Provide a competitive

post-retirement benefit, in

a way that manages the

overall cost to the Company.

Defined contribution plan (with Company

contributions set as a percentage of base salary).

An individual may elect to receive some or all of

their pension contribution as a cash allowance.

25% of base salary for all executive

directors. No element other than

base salary is pensionable.

None.

Benefits

Provide a competitive and

cost-effective benefits package

to executives to assist them to

carry out their duties effectively.

The Group provides a range of benefits which

may include a car benefit (or cash equivalent),

private medical insurance, permanent health

insurance, life assurance and financial advice.

Additional benefits may be also be provided

in certain circumstances which may include

relocation expenses, housing allowance and

school fees. Other benefits may be offered if

considered appropriate and reasonable by

the Committee.

Set at a level which the Remuneration

Committee considers:

– Appropriately positioned against

comparable roles in companies

of a similar size and complexity

in the relevant market

– Provides a sufficient level of benefit

based on the role and individual

circumstances, such as relocation

None.

Annual bonus

Rewards and incentivises

the achievement of annual

financial and strategic targets.

An element of compulsory

deferral until shareholding

guideline is met, providing

a link to the creation of

sustainable long-term

value creation.

Measures and targets are set annually and

payout levels are determined by the Remuneration

Committee after the year-end based on

performance against those targets.

The Remuneration Committee may, in

exceptional circumstances, amend the bonus

payout should this not, in the view of the

Committee, reflect overall business performance

or individual contribution.

The annual bonus is delivered in cash. Executives

must defer 20% of their bonus into shares

until the shareholding guidelines have been met.

Deferred shares normally vest after three years

and may be adjusted to reflect the impact of any

variation of share capital, in accordance with the

plan rules. On the vesting of awards, executives

receive an amount (in cash or shares) equal to

the dividends paid or payable between the date

of grant and the vesting of the award on the

number of shares which have vested.

For maximum performance:

– 125% of salary

For on-target performance:

– 75% of salary

For threshold performance:

– 15% of salary

Performance is assessed using

the following metrics:

– 80% of the award is based

on financial measures

– 20% of the award is based

on strategic measures

The measures and targets

are set by the Committee

each year. The measures

that will apply for the financial

year 2015 are described

in the Directors’ annual

remuneration report.

Directors’ remuneration report continuedDirectors’ remuneration policy report

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Alignment with strategy/purpose Operation Maximum opportunity Performance measures

Performance share plan

Motivates and rewards the

achievement of long-term

business goals.

Supports the creation of

shareholder value through

the delivery of strong market

performance aligned with the

long-term business strategy.

Supports achievement of

our strategy by targeting

performance under our

key financial performance

indicators of organic revenue

growth and EPS growth.

Contingent awards of shares are made annually

with vesting dependent upon the achievement

of performance conditions over three years.

The Remuneration Committee has discretion

to decide whether and to what extent targets

have been met, and if an exceptional event

occurs that causes the Committee to consider

that the targets are no longer appropriate, the

Committee may adjust them.

Awards may also be adjusted in the event

of a variation of capital, in accordance with

the plan rules.

On the vesting of awards, executives receive an

amount (in cash or shares) equal to the dividends

paid or payable between the date of grant and

the vesting of the award on the number of shares

which have vested.

Awards vest on the following basis:

– Target performance: 20% of the maximum

shares awarded

– Stretch performance: 80% of the maximum

shares awarded

– Exceptional performance: 100% of the

shares awarded

– With straight-line vesting between each level

of performance

– Current annual award levels for executive

directors are 250% of base salary at the

time of grant

– Overall individual limit of 300% of base

salary under the rules of the plan

The Committee retains the discretion to

make awards up to the individual limit under

the plan and, as stated in previous

Remuneration reports, would expect to

consult with significant investors if awards

were to be made routinely above current

levels, as the Committee did prior to

increasing award levels for 2013.

Performance is assessed

against three independently

measured metrics which

are equally weighted:

– 1/3 organic revenue

growth with a margin

underpin

– 1/3 EPS growth

– 1/3 relative TSR

performance against

the FTSE 100 (excluding

financial services and

extracting companies)

The measures and targets

are set by the Committee.

Details of the targets that

will apply for 2015 are set

out in the Directors’ annual

remuneration report.

All-employee share plans

Provides an opportunity for

directors to voluntarily invest

in the Company.

UK-based executive directors are entitled to

participate in a UK tax approved all-employee

plan, The Sage Group Savings-Related Share

Option Plan, under which they make monthly

savings over a period of three or five years linked

to the grant of an option over Sage shares with

an option price which can be at a discount of up

to 20% of the market value of shares on grant.

Options may be adjusted to reflect the impact

of any variation of share capital.

Participation limits are those set by the UK

tax authorities from time to time. Currently

this is £500 per month.

None.

Chairman and non-

executive director fees

Provide an appropriate

reward to attract and retain

high-calibre individuals.


do not participate in any

incentive scheme.

Fees are reviewed periodically.

The fee structure is as follows:

– The Chairman is paid a single, consolidated fee

– The non-executive directors are paid a basic

fee, plus additional fees for chairmanship

of Board Committees and to the Senior

Independent Director

– Fees are currently paid in cash but the

Company may choose to provide some of the

fees in shares

– The Chairman has use of a car and driver.

– Non-executive directors may be eligible to

benefits such as company car, use of secretarial

support, healthcare or other benefits that may

be appropriate

Set at a level which:

– Reflects the commitment and contribution

that is expected from the Chairman and

non-executive directors

– Is appropriately positioned against

comparable roles in companies of a

similar size and complexity in the relevant

market, particularly companies of a similar

size and international scope to Sage, in

particular those within the FTSE 100

(excluding the top 30)

The Chairman fee has been set at £360,000

and fixed at this level for five years from the

date of appointment (July 2012).

Overall fees paid to directors will remain

within the limit stated in our articles of

association, currently £1m.

Actual fee levels are disclosed in the

Directors’ annual remuneration report for

the relevant financial year.

None.

Notes:

– Annual bonus performance measures have been selected to provide an appropriate balance between incentivising directors to meet profitability and other financial targets for the year and achieve strategic operational objectives. The measures and targets are selected every year by the Committee.

– There are no specific provisions to withhold or recover sums paid under the current short and long-term incentives. The PSP renewal, pending shareholder approval, will incorporate such provisions for the long-term incentives. Application to short-term incentives will be reviewed in the forthcoming year.

– While our remuneration policy follows the same principles across the Group, packages offered to employees reflect differences in market practice in the different countries the Group operates in and also differences in size of role. Performance share plan: organic revenue growth and EPS are key measures of the success of the execution of our long-term strategy. TSR is considered a key measure for a number of our shareholders and provides further alignment with value created for shareholders.

– All directors submit themselves for re-election annually.


Recruitment remuneration arrangements

In the event of hiring a new executive director, the Committee will seek

to align the remuneration package with our remuneration policy, which

may include the elements outlined in the policy table above. However,

the Committee retains the discretion to make appropriate remuneration

decisions outside the standard policy to meet the individual

circumstances of the recruitment. This may, for example, include the

following circumstances:

– An interim appointment is made to fill an executive director role on

a short-term basis

– Exceptional circumstances require that the Chairman or a

non-executive director takes on an executive function on a short-

term basis

– An executive director is recruited at a time in the year when it

would be inappropriate to provide a bonus or LTIP award for that

year as there would not be sufficient time to assess performance.

The quantum in respect of the months employed during the year

may be transferred to the subsequent year so that reward is

provided on a fair and appropriate basis

– An executive is recruited from a business or location that

offered some benefits that the Committee might consider

appropriate to buy out but that do not fall into the definition

of “variable remuneration forfeited” that can be included in the

buyout element under the wording of the regulations

– The executive received benefits at his previous employer which

the Committee considers it appropriate to offer

The Committee may also alter the performance measures, performance

period and vesting period of the annual bonus or long-term incentive,

subject to the rules of the plan, if the Committee determines that the

circumstances of the recruitment merit such alteration. The rationale

will be clearly explained.

In determining appropriate remuneration arrangements on hiring a new

executive director, the Committee will take into account relevant factors;

this may include the calibre of the individual, local market practice, the

existing remuneration arrangements for other executives and the business

circumstances. We seek to ensure that arrangements are in the best

interests of both Sage and its shareholders and seek not to pay more

than is appropriate.

The Committee may make awards on hiring an external candidate to buy

out remuneration arrangements forfeited on leaving a previous employer.

In doing so the Committee will take account of relevant factors including

any performance conditions attached to these awards, the form in which

they were granted (e.g. cash or shares) and the timeframe of awards. We

will generally seek to structure buyout awards on a comparable basis to

awards forfeited.

The rules of The Sage Group Performance Share Plan permit the grant

of two awards in the first year of employment; the individual limit from the

plan rules would apply to each award.

In order to facilitate the awards mentioned above, the Committee may

therefore rely on exemption 9.4.2. of the Listing Rules which allows for the

grant of awards to facilitate, in exceptional circumstances, the recruitment

of a director.

The remuneration package offered to new directors may include

buyout remuneration and other remuneration components included in

the remuneration policy (as per the policy table above), including: base

salary/fees, pension, benefits, annual bonus and long-term incentives.

The maximum level of variable pay which may be awarded to

new executive directors, excluding buy-out arrangements and awards

in the first year of employment detailed above, would normally be in line

with the maximum level of variable pay that may be awarded under the

annual bonus plan and performance share plan, but in any event the

Committee would not make an award of annual variable pay above

500% of base salary.

Executive director service contracts

All current executive directors have service contracts, which may be

terminated by the Company for breach by the executive or by giving

12 months’ notice by the Company or the individual.

Service contacts for new directors will generally be limited to 12 months’

notice. However, the Committee may agree a longer period, of up to 24

months initially, reducing by one month for every month served until it falls

to 12 months.

Terms and conditions for non-executive directors

The appointment of the non-executive directors is for a fixed term of three

years, during which period the appointment may be terminated by the

Board on six months’ notice. The Chairman’s term of appointment is five

years. There are no provisions on payment for early termination in letters

of appointment.

The letters of appointment of non-executive directors and service

contracts of executive directors are available for inspection at the

Company’s registered office during normal business hours and will

be available at the Annual General Meeting.

Directors’ remuneration report continuedDirectors’ remuneration policy report continued

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Single figure for total remuneration (audited information)

The following table sets out the single figure for total remuneration for executive directors for the financial years ended 30 September 2013 and 2014.

(a)Salary/fees

£’000

(b)Benefits1

£’000

(c)Bonus2

£’000

(d)Pension3

£’000

(e)PSP awards4

£’000Total£’000

Director 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

Executive directors

G S Berruyer5 765 719 121 120 539 651 191 180 – – 1,616 1,670

S Hare6 360 – 15 – 256 – 89 – – – 720 –

Non-executive directors7

D H Brydon 360 360 46 – – – – – – – 406 360

R Markland 88 87 – – – – – – – – 88 87

N Berkett 60 15 – – – – – – – – 60 15

D Hall 45 – – – – – – – – – 45 –

J Howell 74 23 – – – – – – – – 74 23

I Kuznetsova 34 – – – – – – – – – 34 –

I Mason 10 59 – – – – – – – – 10 59

M Rolfe 13 76 – – – – – – – – 13 76

Notes:

1 Benefits provided to the executive directors included: car benefits or cash equivalent, private medical insurance, permanent health insurance, life assurance and financial advice. A housing allowance of £100,000 per annum was provided to Guy Berruyer. Donald Brydon receives a company car benefit.

2 Bonus payable in respect of the financial year including any deferred element at face value at date of award. Further information about how the level of 2014 award was determined is provided in the additional disclosures below.

3 Pension emoluments for both executive directors were equal to 25% of base salary.

4 The 2014 PSP value is based on the PSP award due to vest in March 2015. The value of the award is based on performance to 30 September 2014. Further information about the level of vesting is provided in the additional disclosures below.

5 The CEO’s salary increase of 8% to £780,000 was with effect from 1 January 2014. The figures stated in the table above are pro rata.

6 Steve Hare was appointed as a Director on 3 January 2014. Figures in the table relate to the period from that date to the end of the financial year.

7 Changes in the composition of the non-executive directors during 2014 were the retirements of I Mason and M Rolfe on 30 November 2013, D Hall joining on 1 January 2014 and I Kuznetsova joining on 6 March 2014.

Additional disclosures for single figure for total remuneration table

Base salary

2014

As reported in the last Annual Report & Accounts, the Committee agreed to increase the CEO’s base salary to £780,000 effective from 1 January 2014.

This increase moved the CEO’s salary in line with a level that the Committee felt was appropriate for the role. The CEO was recruited in 2010 on

a significantly lower base salary than his predecessor (whose salary was £770,000 on departure in 2010) with a view to increasing the salary level

once established in the role. The decision was based upon the CEO’s strong performance in the role, and ongoing commitment

to the Group over the last three years.

The new CFO was hired on a base salary of £480,000.

2013

Base salaries were increased by 1.5% from 1 January 2013, and reflect the level of salary budget increases in our key employment markets.

Annual bonus

2014

The bonus targets for 2014 were set by reference to the same measures as the previous year and remain aligned with the three-year strategic goals.

The actual target range has not been disclosed as this is considered by the Board to be commercially sensitive information, whereas many of our

competitors are unlisted companies who do not provide this level of disclosure. An indication of where actual performance fell within the range is

given in the table below. It is intended for retrospective disclosure to be made after a period of three years, and continue on a rolling basis.

Directors’ annual remuneration report


2014 Annual bonus

Bonus measure% Weighting Threshold Target Stretch Performance outcome as a % of maximum bonus

Underlying PBT1 50

Achievement of £340m for 2014 was ahead of the target

range, resulting in 62% of the maximum bonus in relation to

underlying PBT becoming payable.

Organic revenue

growth 30

Organic revenue growth was 5%, within the target range,

and the profit underpin was exceeded, leading to 57% of

the bonus relating to the organic revenue growth measure

becoming payable.

Strategic

measures

(see table below) 20

Guy Berruyer’s strategic objectives achievement for 2014

led to 37% of the bonus relating to strategic measures

becoming payable.

Steve Hare’s strategic objectives for 2014 were close to target

which led to 45% of the bonus relating to strategic measures

becoming payable.

Overall

assessment

Guy Berruyer received a bonus equal to 69% of salary

(55% of the maximum). No bonus was deferred into shares

as the CEO has met the Company’s shareholding requirement

of 150% of annual salary.

Steve Hare received a bonus equal to 71% of salary (57% of

the maximum). 20% was deferred into Sage shares under the

Company’s shareholding requirement of 150% of annual salary.

Shared measures

Measures specific to CEO

Measures specific to CFO

1 PBT is defined as statutory profit before tax excluding recurring items including amortisation of acquired intangible assets, acquisition-related items, fair value adjustments and imputed interest; and non-recurring items that management judge to be one-off or non-operational. The impact of foreign exchange is neutralised in prior year figures.

Executive directors’ personal strategic objectives

CEO measures CFO measures

Payment strategy

Successful conclusion of our payments strategy review

Global Finance strategy

Define vision, strategy and resulting implementation commitments

for Global Finance

Organisation

Maintain momentum in organisational change to support our strategy

for both short and long-term strategies

KPIs

Implement revised reporting of KPIs to the Board and Executive

Committee

Cloud products

Improve cloud solutions, increasing product offerings to achieve

desired run rates across products and geographical segmentations

Cloud products

Improve cloud solutions, increasing product offerings to achieve

desired run rates across products and geographical segmentations

Net promoter scores

Improve customer net promoter scores

Net promoter scores

Improve our net promoter scores through a focused approach

to providing an extraordinary customer experience

2013

As in 2014, the bonus was based on 50% profitability, 30% organic revenue growth, with PBT underpin and 20% strategic measures. None of

the bonus for the year was deferred because Mr Berruyer had met the shareholding requirement in full.

Directors’ remuneration report continuedDirectors’ annual remuneration report continued

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

PSP awards

2014 2013

Performance period 1 Oct 2011 – 30 Sept 2014 1 Oct 2010 – 30 Sept 2013

Grant date March 2012 March 2011

Vesting date March 2015 March 2014

Vesting % (see performance below) 0% 0%

Performance

Award for the period was based on EPS growth in excess of RPI over three years. Awards are also subject to a TSR multiplier whereby the level of

vesting based on EPS performance is adjusted according to TSR performance over the same period.

2014 2013

AchievedThreshold/Vesting %

StretchMaximumvesting % Vesting % Achieved

Threshold/Vesting %

StretchMaximumvesting % Vesting %

EPS1 RPI + 7.9%

RPI + 9%/

25%

RPI + 27%/

100% 0% RPI + 6%

RPI + 9%/

25%

RPI + 27%/

100% 0%

TSR percentile rank 29th2

Lower quartile/

75%

Upper quartile/

150% 79% 43rd3

Lower quartile/

75%

Upper quartile/

150% 93%

Vesting % (EPS * TSR) 0% 0%

Notes:

1 EPS – For all PSP awards, EPS refers to earnings per share before recurring items including amortisation of acquired intangible assets, acquisition-related items, fair value adjustments, imputed interest and non-recurring items management judge to be one-off or non-operational. These adjustments are net of tax and the impact of foreign exchange is neutralised in prior year EPS. This measure has been selected since the timing of acquisitions can be unpredictable, with the result that the amortisation charge in respect of intangible assets is inherently difficult to budget. The neutralised foreign currency basis has been selected as the Board considers this to be consistent with the presentation and assessment of results by shareholders.

2 TSR Peer Group FTSE 100 index at the start of the performance period (1 October 2012), excluding financial services and extracting companies.

3 TSR Peer Group: Adobe Systems Cegid Micro Focus International SAP

ARM Holdings Dassault Systemes Microsoft Software AG

Blackbaud Exact Oracle

Cap Gemini Intuit Salesforce.com

Awards granted in 2014

Awards granted under the PSP in 2014 will vest depending on performance against three equally weighted measures, measured over three years:

– 1/3 organic revenue growth with a margin underpin

– 1/3 EPS growth

– 1/3 relative TSR performance against the FTSE 100 (excluding financial services and extracting companies)

For each measure, three levels of performance are defined below, with straight-line vesting between each level of performance: target, stretch

and exceptional.

The performance targets applying to the award granted during the financial year are:

Measure Between target and stretch Between stretch and exceptional

EPS growth (CAGR) Between 6% and 12% Between 12% and 15% (or above)

Relative TSR Between median and upper quartile Between upper quartile and upper decile (or above)

Organic revenue growth (CAGR) Between 4% and 8% Between 8% and 10% (or above)

As outlined in the policy table, awards are made in shares and the number of shares is determined based on a percentage of base salary.

The following table sets out details of awards of conditional shares made during the year under the PSP.

Amount vesting

Date of award Face valueThreshold performance

(% of face value)Maximum performance

(% of face value)End of

performance period

CEO 10 March 2014 250% of salary 20% 100% 30 September 2016

CFO 10 March 2014 250% of salary 20% 100% 30 September 2016

Notes:

– The face value has been calculated using the share price the day before the day of grant of 419p.

– These awards vest on the third anniversary of the date of award.


250

200

150

100

Value (£)

50

30-Sep-08

Sage

30-Sep-09 30-Sep-10 30-Sep-11 30-Sep-12 30-Sep-1430-Sep-13

FTSE 100 Index

Historical Group performance against FTSE 100

Notes:

– This graph shows the value, by 30 September 2014, of £100 invested in The Sage Group plc on 30 September 2008 compared with the value of £100 invested in the FTSE 100 index. The other points plotted are the values at intervening financial year ends.

Loss of office payments

No payments for loss of office were made to past directors during the year. No payments have been made that have not already been included in

the single figure of remuneration set out earlier in this report.

Change in remuneration of CEO compared to Group employees

The table below shows the percentage change in total remuneration of the CEO with a comparator group of UK employees over the same time period.

CEO UK Employees

Salary +8%1 +5.6%2

Taxable benefits +1% +10%

Annual incentive -17% +12%3

Notes:

1 Referencing last year’s disclosure, the increase reflects Guy Berruyer’s growth in the role and moved his salary to a more appropriately competitive level. The decision considered the CEO’s strong performance in the role and ongoing commitment to the Group over the last three years and aligns his pay with that of his predecessor.

2 The percentage change for UK Group employees shown is the 2014 annual pay review and promotions/market adjustments during 2014.

3 For annual incentives, the comparator group used is the UK management population.

Historical executive pay and Company performance

The table below summarises the CEO single figure for total remuneration, annual bonus payout and PSP vesting as a percentage of maximum

opportunity for the current year and previous five years.

CEO 2009 2010 2011 2012 2013 2014

CEO single figure of remuneration (in £’000) Guy Berruyer1 – – 2,935 1,196 1,670 1,616

Paul Walker2 1,797 2,196 – – – –

Annual bonus payout (as % maximum opportunity) Guy Berruyer – – 66% 21% 72% 55%

Paul Walker 38% 83% – – – –

PSP vesting (as % of maximum opportunity) Guy Berruyer – – 61% 0% 0% 0%

Paul Walker 74% 26% – – – –

Notes:

1 Guy Berruyer was appointed CEO on 1 October 2010.

2 Paul Walker resigned as CEO on 1 October 2010.

The graph below shows the total shareholder return of the Group and the FTSE 100 over the last six years. The FTSE 100 index is the index against

which the TSR of the Group should be measured because of the comparable size of the companies which comprise that index.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Relative importance of spend on pay

The charts below show the all-employee pay cost (as stated in the notes to the accounts), profit before tax and returns to shareholders by

way of dividends and share buyback for 2013 and 2014.

The information shown in this chart is based on the following:

– Underlying PBT – Underlying profit before income tax taken from table on page 104

– Returns to shareholders – Total dividends taken from note 14.5 on page 149, share buyback taken from consolidated statement of

changes in equity on page 107

– Total employee pay – Total staff costs from note 3.3 on page 118, including wages and salaries, social security costs, pension and

share-based payments

Notes:

– The 2013 reported PBT figure includes the profit contribution from certain products disposed of during 2013.

– The returns to shareholders for 2013 includes significant returns to meet the leverage target of 1x net debt to EBITDA, which included the proceeds from the non-core disposals. In 2014, we have used the buyback to help maintain the leverage target and have continued to pursue a progressive dividend policy.

Statement of implementation of remuneration policy in the following financial year

Appointment of the CEO

Stephen Kelly joined the Board as CEO on 5 November 2014. On an ongoing basis, he will be entitled to receive an annual bonus

and award under the PSP to the same extent as his predecessor.

His remuneration package is set out below:

– Base salary – £790,000 per annum, subject to review in January 2016. In considering the new CEO’s base salary, the Committee referenced

Mr Kelly’s previous experience and external market benchmarking as well as the timing of his commencement which was after the Company’s

normal annual salary review. Mr Kelly’s salary represents an increase of just over 1% of the departing CEO’s salary

– Annual bonus – 75% of base salary for on-target performance and 125% of salary for maximum performance in line with current policy

– Long-term incentives – a standard PSP award equal to 250% of base salary in the year in line with normal policy. The award will be subject to

performance conditions set out below and a three-year performance period

– In addition, and to further align his incentives with shareholders, he received a one-off PSP award of 125% of base salary with a six-year

vesting period. This award will vest at the end of the financial year 2019/20 provided that the Group’s TSR CAGR has been at least 15% over

the period from the date of the award to the vesting date, with 20% of the award vesting if, over the period in question, the Group’s TSR is

equal to the median of the performance of the companies in the FTSE 100 (excluding Financials and Mining) and 100% of the award vesting

if TSR is equal to or greater than the upper quartile performance of companies in the FTSE 100 (excluding Financials and Mining). No payment

has been made to buyout awards from his previous employer

– Benefits – provided in line with our policy

– Pension – a Company contribution to the defined contribution plan of 25% of base salary. He will be eligible to receive some or all of his

pension allowance in cash if he elects to do so, in line with our pension policy

– Shareholding guidelines – all executive directors are required to hold 150% of their annual salary in the Company’s shares. Until this

requirement is met, 20% of his bonus will be deferred into shares and he will retain (net of any shares sold to meet tax liability) 50% of shares

vesting from deferred bonus, PSP and exercise of options

Underlying PBT (£m) Returns to shareholders (£m) Total employee pay (£m)

-1%

Ordinary dividends

+3%-100%

-64%Special dividends

Flat Buyback

340340

622 617

2013 2014

126122

2013 2014

199

2013 2014

91

251

2013 2014 2013 2014


Retirement of the CEO

Guy Berruyer will be paid his base salary and contractual benefits until his termination date of 31 March 2015. Mr Berruyer continued to receive

a housing allowance and will be eligible for a bonus for the period he remained CEO up to and including 5 November 2014. Such bonus will be

payable in alignment with the Company’s annual bonus timeline and performance measures. He will not receive a PSP award for 2015.

Any unlapsed options granted under the Sage Group Executive Share Option Scheme will be exercisable for a period of six months following his

termination date. Awards granted under the Sage PSP may be retained and will be exercisable in accordance with the plan rules. These awards

will vest at the end of their respective performance periods pro rata to the time elapsed between the date of grant of the relevant award and his

termination date, and to the extent that the relevant performance targets have been met over the full performance period.

Components of remuneration

Effective from 1 January 2014, the base salary for the outgoing CEO was £780,000. The base salary for the new CEO, effective from

his joining on 5 November 2014 is £790,000.

The new CFO was appointed on a base salary of £480,000. His salary increased to £494,400, an increase of 3%, with effect from 1 January 2015.

The CFO’s pension provision (25% of salary) and benefits remain unchanged from 2014.

Pension and benefits are in line with benefits stated in the policy table.

The maximum bonus opportunity under our annual bonus plan is unchanged in 2015 at 125% of salary. 20% off any bonus must be deferred

into shares by the CEO and CFO until they are compliant with their shareholding requirement of 150% of salary. The performance measures remain

50% profitability (underlying PBT), 30% organic revenue growth and 20% strategic measures, unchanged from 2014. Targets are not disclosed because

they are considered by the Board to be commercially sensitive. Many of our competitors are unlisted companies and not required to disclose targets;

our disclosure could provide our competitors with a considerable advantage. It is intended for retrospective disclosure to be made after a period of three

years, in alignment with our three-year strategy, and continue to be made on a rolling basis.

The CEO and CFO received a standard PSP award of 250% of base salary in 2015. As outlined above, the CEO also received a one-off joining

award under the PSP.

The extent of vesting of the standard PSP award will be assessed against three equally weighted, independently measured metrics:

– 1/3 organic revenue growth with a margin underpin

– 1/3 EPS growth

– 1/3 relative TSR performance against the FTSE 100 (excluding financial services and extracting companies)

The long-term measures remain unchanged from 2014.

Measure Between target and stretch Between stretch and exceptional

EPS growth (CAGR) Between 6% and 12% Between 12% and 15% (or above)

Relative TSR Between median and upper quartile Between upper quartile and upper decile (or above)

Organic revenue growth (CAGR) Between 4% and 8% Between 8% and 10% (or above)

Remuneration policy review

Further to the recent publication of the UK Corporate Governance Code, the Committee will, during 2015, consider the extension of clawback

and malus provisions in relation to annual incentives. Implementation of any changes would be considered for the following financial year.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Illustration of our remuneration policy for 2015

The tables below set out an illustration of the remuneration policy in line with the remuneration policy above and include base salary, pension,

benefits and incentives.

The tables provide an illustration of the proportion of total remuneration made up of each component of the remuneration policy and the value of

each component. Benefits are calculated as per the single figure of remuneration.

Four scenarios have been illustrated for each executive director:

Below threshold performance No bonus payout

No vesting under the Performance Share Plan

Target performance 75% of salary payout in annual bonus (60% of maximum opportunity)

Shares equivalent to 50% of salary vesting under the Performance Share Plan (20% of total shares available)

Stretch performance 125% of salary payout in annual bonus (100% of maximum opportunity)

Shares equivalent to 200% of salary vesting under the Performance Share Plan vesting (80% of total shares available)

Exceptional performance 125% of salary payout in annual bonus (100% of maximum opportunity)

Shares equivalent to 250% of salary vesting under the Performance Share Plan vesting (100% of total shares awarded)

The scenarios below do not take into account share price appreciation or dividends. For the purpose of the illustrations the value of each

component has been rounded to the nearest £1,000.

Salary Pension Benefits Annual bonus (including any deferred amounts) Long-term incentives One-off PSP

CEO policy

£1,000,000£0 £2,000,000 £3,000,000 £4,000,000 £5,000,000

16 4 0 20

18 5 0

36 9 1

78 20 2

27 18 9

23 36 18

40 20

£1,008,700

£2,193,700

£4,958,700

£4,366,200

Exceptional (%)

Stretch (%)

Below

threshold (%)

Target (%)

CFO policy

£1,000,000£0 £2,000,000 £3,000,000 £4,000,000 £5,000,000

10 3 0 13 25

11 3 140

23 6 171

78 19 3

11

23

£641,867

£1,265,867

£2,513,867

£2,264,267

Exceptional (%)

Stretch (%)

Below

threshold (%)

Target (%)


Directors’ shareholdings and share interests (audited information)

Executive directors are required to hold 150% of their annual salary in the Company’s shares. Until this requirement is met, executive directors

must defer 20% of their bonus into shares, and retain (net of any shares sold to meet tax liability) 50% of shares received from deferred bonus,

PSP and exercise of options.

At the year-end, Guy Berruyer met the requirement, while 20% of Steve Hare’s bonus was deferred into shares.

Interests in shares

The interests of each person who was a director of the Company as at 30 September 2014 (together with interests held by his or her connected

persons) were:

Director

Ordinary shares at

30 September 2014 number

Ordinary shares at

30 September 2013 number

G S Berruyer 712,434 705,232

D H Brydon 53,024 38,024

R Markland 4,753 4,753

N Berkett 27,999 28,000

D Hall 10,000 0

S Hare 0 0

J Howell 12,833 12,833

I Kuznetsova 0 0

Total 821,043 798,842

Notes:

– There have been no changes in the directors’ holdings in the share capital of the Company, as set out in the table above, between 30 September 2014 and the date of this report.

– For information, Stephen Kelly’s shareholding as at the date of this report was 67,500 shares.

Details of the executive directors’ interests in outstanding share awards under the ESOS, PSP, deferred shares and all-employee plans are set

out below.

Executive share options (audited information)

The Group’s only executive share option scheme is the ESOS. In the year under review, executive directors did not receive grants under this scheme.

The outstanding executive share options granted to each director of the Company under the executive share option schemes, including the ESOS,

are as follows:

DirectorExercise price

per share

Shares under option at

1 October 2013

number

Grantedduring

the year number

Exercised during

the year number

Lapsedduring

the year number

Shares under option at

30 September 2014

number Date exercisable

G S Berruyer 198.00p 189,082 189,082 6 January 2008 – 6 January 2015

258.50p 122,630 122,630 10 January 2009 – 10 January 2016

270.00p 62,008 62,008 10 January 2010 – 10 January 2017

Total 373,720 373,720

Notes:

– No options were varied during the year.

– The performance criteria for options which became exercisable on or after 6 January 2008 are based on EPS growth measured over a fixed three-year period from the start of the financial year in which the grant was made. 30% of options would vest at the end of the period if the increase in EPS exceeded RPI by 15% (an average of 5% per year) and 100% of those options would vest if RPI was exceeded in that period by 27% (an average of 9% per year). Between those points, options vest on a straight-line basis. There was no further retesting.

– The market price of a share of the Company at 30 September 2014 was 365.40p and the lowest and highest market price during the year was 311.60p and 439.78p respectively.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Performance Share Plan (audited information)

The outstanding awards granted to each executive director of the Company under the Performance Share Plan are as follows:

Director

Under award 1 October

2013number

Awarded during

the year number

Vestedduring

the year number

Lapsed during

the yearnumber

Under award 30 September

2014number Vesting date

G S Berruyer – 464,894 – – 464,894 10 March 2017

527,286 – – – 527,286 14 March 2016

476,062 – – – 476,062 12 March 2015

737,795 – – (737,795) 0 –

1,741,143 464,894 – (737,795) 1,468,242

S Hare – 286,088 – – 286,088 10 March 2017

– 116,873 – – 116,873 20 January 2017

– 402,961 – – 402,961

Total 1,741,143 867,855 – (737,795) 1,871,203

Notes:

– No variations were made in the terms of the awards in the year.

– The market price of a share on 10 March 2014, the date of the awards made in the year ended 30 September 2014, was 419p.

– The performance condition for awards made in March 2011, 2012 and 2014 is set out earlier in this report. The performance condition for awards made in March 2013 and January 2014 is the same as the condition for March 2014.

Deferred shares (audited information)

The outstanding awards granted to each executive director of the Company under The Sage Group Deferred Bonus Plan are as follows:

Director

Shares at 1 October

2013 number

Shares awarded during

the year number

Shares vested during

the year number

Shares lapsed during

the year number

Shares at30 September

2014 number Vesting date

G S Berruyer 12,404 – 12,404 – 0 10 January 2014

Total 12,404 – 12,404 – 0

Notes:

– Awards of shares will vest on the third anniversary of the date of grant. In the event that a director ceases to be an employee of the Group for reasons other than death, retirement, redundancy, injury, ill-health or disability before the third anniversary of the date of grant then the rights to the award will lapse, unless the Remuneration Committee recommends otherwise.

– Awards are not subject to further performance conditions once granted.

– No variations were made in the terms of the awards in the year.

There are limits on the number of newly issued and treasury shares that can be used to satisfy awards under the Group’s employee share schemes

in any 10-year period. The limits and the Group’s current position against those limits as at 27 November 2014 (the last practicable date prior to

publication of this document) are set out below:

Limit Current position

7.5% of Group’s share capital can be used for discretionary share schemes 3.35%

10% of Group’s share capital can be used for all share schemes 4.14%

The Company has previously satisfied all awards under the Performance Share Plan through the market purchase of shares or transfer of treasury

shares and will continue to consider which is the most appropriate approach, based on the relevant factors at the time.

External appointments

Executive directors are permitted, where appropriate and with Board approval, to take non-executive directorships with other organisations in order

to broaden their knowledge and experience in other markets and countries. Fees received by the directors in their capacity as directors of these

companies are retained, reflecting the personal responsibility they undertake in these roles. Mr G S Berruyer is a Non-executive Director of Meggitt Plc.

For the year under review, fees in respect of this non-executive directorship were £52,687.56.

The Board recognises the significant demands that are made on executive and non-executive directors and has therefore adopted a policy that

no executive director should hold more than two directorships of other listed companies. The Board encourages executive directors to limit other

directorships to one listed company. Except in exceptional circumstances where approved in advance by the Chairman of the Committee, if an executive

director holds non-executive positions at more than one listed company then only the fees from one such company will be retained by the director.

No formal limit on other board appointments applies to non-executive directors under the policy but prior approval (not to be unreasonably withheld)

from the Chairman on behalf of the Board is required in the case of any new appointment. In the case of the Chairman, prior approval of the Nomination

Committee is required on behalf of the Board.


Unexpired term of contract table

Director Date of contract

Unexpired term of contract on 30 September 2014, or on

date of contract if later Notice period under contract

Executive directors

G S Berruyer 1 October 2010 6 months 12 months from the Company and/or individual

S Hare 3 January 2014 12 months 12 months from the Company and/or individual


N Berkett 5 July 2013 1.5 years 6 months from the Company or 1 month from individual

D H Brydon 6 July 2012 3 years 6 months from the Company and/or individual

J Howell 15 May 2013 1.5 years 6 months from the Company or 1 month from individual

R Markland 13 September 2012 1 year 6 months from the Company or 1 month from individual

D Hall 3 January 2014 2.5 years 6 months from the Company or 1 month from individual

I Kuznetsova 6 March 2014 2.5 years 6 months from the Company or 1 month from individual

Consideration by the directors of matters relating to directors’ remuneration

The following directors were members of the Remuneration Committee when matters relating to the directors’ remuneration for the year were

being considered:

– Ms R Markland (Chair) – Mr D Hall

– Mr D H Brydon – Mr J Howell

– Mr N Berkett – Ms I Kuznetsova

The Committee received assistance from Mr R Drury (Group Human Resources Director), Ms R Fyffe (former Director of Performance and

Reward) and Mr M J Robinson (Company Secretary) and other members of management, who may attend meetings by invitation, except

when matters relating to their own remuneration are being discussed.

External advisers

The Remuneration Committee continues to receive advice from Deloitte, an independent firm of remuneration consultants appointed by the Committee

after consultation with the Board. During the year, Deloitte’s executive compensation advisory practice advised the Committee on developments in

market practice, corporate governance, institutional investor views and in the development of the Company’s incentive arrangements. Total fees for

advice provided to the Committee during the year were £60,450.

The Committee is satisfied that the advice they have received has been objective and independent.

Deloitte is a founding member of the Remuneration Consultants Group and adheres to its Code in relation to executive remuneration consulting in the

UK. Other parts of Deloitte have provided tax advice, specific corporate finance support in the context of merger and acquisition activity and unrelated

corporate advisory services.

Statement of shareholding voting

The table below sets out the results of the vote on the Remuneration report and the Remuneration policy respectively at the 2014 AGM:

Votes for Votes against

Number % Number % Votes cast Votes withheld

Remuneration report 795,851,111 96.20% 31,404,471 3.80% 827,255,582 2,134,887

Remuneration policy 778,225,813 94.98% 41,157,395 5.02% 819,383,208 10,007,261

Ruth Markland

Chairman of the Remuneration Committee

3 December 2014


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

The directors present their report together with the audited consolidated

financial statements for the year ended 30 September 2014.

The Annual Report & Accounts contains statements that are not based

on current or historical fact and are forward-looking in nature. Please

refer to the "Disclaimer" on page 97.

Strategic report

The information that fulfils the reporting requirements relating to

the following matters can be found on the following pages of the

Strategic report:

Subject matter Page

Important events

since the year-end

47 – Financial and operating review in the

Strategic report

Future developments 10 – Performance review in the Strategic report

Greenhouse gas

emissions

55 – Environment section of the

Strategic report

Corporate governance statement

The Disclosure and Transparency Rules ("DTR") require certain information

to be included in a corporate governance statement in the Directors’

report. This information can be found in the Corporate governance report

on pages 61 to 76, which is incorporated into this Directors’ report by

reference and, in the case of the information referred to in DTR 7.2.6, in

this Directors’ report.

Disclosure of information under Listing Rule 9.8.4

Information on allotments of shares for cash pursuant to the Group

employee share schemes can be found on page 144 within the

notes to the Group financial statements.

Results and dividends

The results for the year are set out on page 104. Full details of the

proposed final dividend payment for the year ended 30 September

2014 are set out on page 149. The Board is proposing a final dividend

of 8.00p per share following the payment of an interim dividend of

4.12p per share on 6 June 2014. The proposed total dividend for

the year is therefore 12.12p per share.

Going concern

The following statement has been included in accordance with

the Listing Rules: Based on normal business planning and control

procedures, the directors have a reasonable expectation that the

Company and the Group have adequate resources to continue

in operational existence for the foreseeable future. For this reason,

the directors continue to adopt the going concern basis in preparing

the accounts.

Research and development

During the year, we invested £131m (2013: £145m) in research

and development.

Political donations

No political donations were made in the year.

Directors and their interests

A list of directors, their interests in the ordinary share capital of the

Company, their interests in its long-term performance share plan and

details of their options over the ordinary share capital of the Company

are given in the Directors’ remuneration report on page 90. No director

had a material interest in any significant contract, other than a service

contract or contract for services, with the Company or any of its

operating companies at any time during the year.

The names of all persons who, at any time during the year, were

directors of the Company can be found on pages 62 to 63 under Board

of Directors and Changes to the Board.

As at the date of this report, indemnities (which are qualifying third-party

indemnity provisions under the Companies Act 2006) are in place

under which the Company has agreed to indemnify the directors of the

Company and the former directors of the Company who held office during

the year ended 30 September 2014, to the extent permitted by law and

by the Company’s articles of association, in respect of all liabilities incurred

in connection with the performance of their duties as a director of the

Company or its subsidiaries. Copies of these indemnities are available

for review at the Company’s registered office.

Employment policy

The Group continues to give full and fair consideration to applications

for employment made by disabled persons, having regard to their

respective aptitudes and abilities. The policy includes, where practicable,

the continued employment of those who may become disabled during

their employment and the provision of training and career development

and promotion, where appropriate. The Group has continued its policy

of employee involvement by making information available to employees

on matters of concern to them. Employees regularly receive updates

on the financial and economic factors affecting the Group from both

central and local management. Many employees are stakeholders in the

Company through participation in share option schemes and a long-term

performance share plan. Further details of employment policies are given

on pages 51 to 54.

Directors’ report


Directors’ report continued

Substantial shareholdings

At 30 September 2014, the Company had been notified, in accordance

with the DTRs, of the following interests in its ordinary share capital:

Name Ordinary shares % of capital Nature of holding

Aberdeen Asset

Managers 61,706,538 5.62 Indirect

Schroders plc 55,221,546 5.02 Indirect

Aviva plc 50,389,626 4.59 Direct and indirect

In the period from 30 September 2014 to 27 November 2014, we received no further notifications. Information provided to the Company under the DTRs is publically available via the regulatory information service and on the Company website.

Share capital

The Company’s share capital is as set out on page 144. The Company

has a single class of share capital which is divided into ordinary shares

of 14/77p each.

Rights and obligations attaching to shares

Voting

In a general meeting of the Company, subject to the provisions of the

articles of association and to any special rights or restrictions as to voting

attached to any class of shares in the Company (of which there are none):

– On a show of hands, a qualifying person (being an individual who

is a member of the Company, a person authorised to act as the

representative of a corporation or a person appointed as a proxy

of a member) shall have one vote, except that a proxy has one

vote for and one vote against a resolution if the proxy has been

appointed by more than one member and has been given conflicting

voting instructions by those members, or has been given discretion

as to how to vote

– On a poll, every member who is present in person or by proxy

shall have one vote for every share of which he or she is the holder

No member shall be entitled to vote at any general meeting or class

meeting in respect of any shares held by him or her if any call or other

sum then payable by him or her in respect of that share remains unpaid.

Currently, all issued shares are fully paid.

Deadlines for voting rights

Full details of the deadlines for exercising voting rights in respect of the

resolutions to be considered at the Annual General Meeting to be held

on 3 March 2015 will be set out in the Notice of Annual General Meeting.

Dividends and distributions

Subject to the provisions of the Companies Act 2006, the Company may,

by ordinary resolution, declare a dividend to be paid to the members,

but no dividend shall exceed the amount recommended by the Board.

The Board may pay interim dividends, and also any fixed rate dividend,

whenever the financial position of the Company, in the opinion of the

Board, justifies its payment. All dividends shall be apportioned and paid

pro-rata according to the amounts paid up on the shares.

Liquidation

If the Company is in liquidation, the liquidator may, with the authority

of a special resolution of the Company and any other authority required

by the statutes (as defined in the articles of association):

– Divide among the members in specie the whole or any part of the

assets of the Company; or

– Vest the whole or any part of the assets in trustees upon such trusts

for the benefit of members as the liquidator, with the like authority,

shall think fit

Transfer of shares

Subject to the articles of association, any member may transfer all or any

of his or her certificated shares by an instrument of transfer in any usual

form or in any other form which the Board may approve. The Board may,

in its absolute discretion, decline to register any instrument of transfer

of a certificated share which is not a fully paid share (although not so as

to prevent dealings in shares taking place on an open and proper basis)

or on which the Company has a lien.

The Board may also decline to register a transfer of a certificated share

unless the instrument of transfer is: (i) left at the office, or at such other

place as the Board may decide, for registration; and (ii) accompanied by

the certificate for the shares to be transferred and such other evidence

(if any) as the Board may reasonably require to prove the title of the

intending transferor or his or her right to transfer the shares.

The Board may permit any class of shares in the Company to be held

in uncertificated form and, subject to the articles of association, title to

uncertificated shares to be transferred by means of a relevant system

and may revoke any such permission. Registration of a transfer of an

uncertificated share may be refused where permitted by the statutes

(as defined in the articles of association).

Repurchase of shares

The Company obtained shareholder authority at the last Annual General

Meeting (6 March 2014) to buy back up to 109,710,822 ordinary shares.

The minimum price which must be paid for each ordinary share is its

nominal value and the maximum price is the higher of 105% of the

average of the middle market quotations for an ordinary share as derived

from the London Stock Exchange Daily Official List for the five business

days immediately before the purchase is made and the amount stipulated

by article 5(1) of the Buy-back and Stabilisation Regulation 2003 (in each

case exclusive of expenses).

In the year under review, the Company repurchased a total of 24,206,805

ordinary shares of 14/77p each at prices between 312.3p and 399.0p per

share. The aggregate amount of consideration paid was £90m. Following

repurchase, these shares were held in treasury. The rationale for these

share repurchases is referred to on page 35 in the Strategic report. The

movement in earnings per share comprises profit growth and a change

in the weighted average share base as a result of share repurchases, the

impact of which is as follows:

% chgUnderlying basic EPS

2013 20.98

Due to change in underlying profit after tax 1.3% 0.27

Due to change in weighted average share base 6.9% 1.44

2014 8.2% 22.69

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

In the year under review no treasury shares were cancelled.

On 30 September 2014, the Company appointed Citigroup Global

Markets Ltd (“Citi”) to manage an irrevocable buyback programme during

the close period which commenced on 1 October 2014 and will run up

to 3 December 2014. From 1 October 2014 to 27 November 2014, the

last practicable date prior to publication of the Annual Report & Accounts,

3,457,020 ordinary shares of 14/77p each were repurchased through Citi

at a weighted average price of 363.8p per share. The highest and lowest

prices paid for these shares were 390.7p per share and 347.0p per share

respectively. The purchased shares have not been cancelled and are held

as treasury shares. These shares represent 0.3% of the issued share

capital. The total number of ordinary shares in issue (excluding shares

held as treasury shares) at 27 November 2014 is 1,076,443,965.

Amendment of the Company’s articles of association

Any amendments to the Company’s articles of association may be made

in accordance with the provisions of the Companies Act 2006 by way of

special resolution.

Appointment and replacement of directors

Directors shall be no less than two and no more than 15 in number.

Directors may be appointed by the Company by ordinary resolution or

by the Board. A director appointed by the Board holds office only until

the next Annual General Meeting and is then eligible for election by the

shareholders. The Board may from time to time appoint one or more

directors to hold employment or executive office for such period (subject

to the Companies Act 2006) and on such terms as they may determine

and may revoke or terminate any such appointment.

Under the articles of association, at every Annual General Meeting of the

Company, every director shall retire from office (but shall be eligible for

election or re-election by the shareholders). The Company may by special

resolution (or by ordinary resolution of which special notice has been

given) remove and the Board, by unanimous decision, may remove any

director before the expiration of his or her term of office. The office of

director shall be vacated if: (i) he or she resigns; (ii) he or she has become

physically or mentally incapable of acting as a director and may remain so

for more than three months, or by reason of his or her mental health a

court has made an order that prevents the director from acting and, in

either case, the Board resolves that his or her office is vacated; (iii) he or

she is absent without permission of the Board from meetings of the Board

for six consecutive months and the Board resolves that his or her office is

vacated; (iv) he or she becomes bankrupt or makes an arrangement or

composition with his or her creditors generally; (v) he or she is prohibited

by law from being a director; or (vi) he or she is removed from office

pursuant to the articles of association.

Powers of the directors

The business of the Company will be managed by the Board who may

exercise all the powers of the Company, subject to the provisions of the

Company’s articles of association, the Companies Act 2006 and any

ordinary resolution of the Company.

Shares held in the Employee Benefit Trust

The trustee of The Sage Group plc Employee Benefit Trust (“EBT”) has

agreed not to vote any shares held in the EBT at any general meeting.

If any offer is made to shareholders to acquire their shares the trustee will

not be obliged to accept or reject the offer in respect of any shares which

are at that time subject to subsisting awards, but will have regard to the

interests of the award holders and will have power to consult them to

obtain their views on the offer. Subject to the above the trustee may take

the action with respect to the offer it thinks fair.

Significant agreements

The following significant agreements contain provisions entitling the

counterparties to exercise termination or other rights in the event of a

change of control of the Company:

– Under a dual tranche US$551 million and €218 million five-year

multi-currency revolving credit facility agreement dated 26 June

2014 between, amongst others, the Company and Lloyds Bank plc

(as facility agent), on a change of control, if any individual lender so

requires and after having consulted with the Company in good faith

for not less than 30 days following the change of control, the facility

agent shall, by not less than 10 business days’ notice to the

Company, cancel the commitment of that lender and declare

the participation of that lender in all outstanding loans, together

with accrued interest and all other amounts accrued under the

finance documents, immediately due and payable, whereupon

the commitment of that lender will be cancelled and all such

outstanding amounts will become immediately due and payable

– Under a note purchase agreement dated 11 March 2010 relating

to US$200 million senior notes, Series A, due 11 March 2015,

US$50 million senior notes, Series B, due 11 March 2016 and

US$50 million senior notes, Series C, due 11 March 2017 between

the Company and the note holders, on a change of control, the

Company will not take any action that consummates or finalises a

change of control unless at least 15 business days prior to such

action it shall have given to each holder of notes written notice

containing and constituting an offer to prepay all notes on a date

specified in such offer which shall be a business day occurring

subsequent to the effective date of the change of control which is

not less than 30 days or more than 60 days after the date of the

notice of prepayments. Where a holder of notes accepts the offer

to prepay, the prepayment shall be 100% of the principal amount

of the notes together with accrued and unpaid interest thereon and

shall be made on the proposed prepayment date. No prepayment

under a change of control shall include any premium of any kind


Directors’ report continued

– Under a note purchase agreement dated 20 May 2013

relating to US$50 million senior notes, Series D, due 20 May

2018, US$150 million senior notes, Series E, due 20 May 2020,

US$150 million senior notes, Series F, due 20 May 2023 and

US$50 million senior notes, Series G, due 20 May 2025 between

Sage Treasury Company Ltd and the note holders and guaranteed

by the Company, on a change of control of the Company, the

Company will not take any action that consummates or finalises

a change of control unless at least 15 business days prior to

such action it shall have given to each holder of notes written

notice containing and constituting an offer to prepay all notes

on a date specified in such offer which shall be a business day

occurring subsequent to the effective date of the change of

control which is not less than 30 days or more than 60 days after

the date of the notice of prepayments. Where a holder of notes

accepts the offer to prepay, the prepayment shall be 100% of

the principal amount of the notes together with accrued and

unpaid interest thereon and shall be made on the proposed

prepayment date. No prepayment under a change of control

shall include any premium of any kind

Under the terms of all three agreements, a “change of control” occurs

if any person or group of persons acting in concert gains control of

the Company.

Financial risk management

The Group’s exposure to and management of capital, liquidity,

credit, interest rate and foreign currency risk are summarised below.

Capital risk

The Group’s objectives when managing capital (defined as net debt plus

equity) are to safeguard our ability to continue as a going concern in order

to provide returns to shareholders and benefits for other stakeholders,

while optimising return to shareholders through an appropriate balance

of debt and equity funding. The Group manages its capital structure and

makes adjustments to it with respect to changes in economic conditions

and our strategic objectives. The Group has set a long-term minimum

leverage target of 1x net debt to EBITDA and will work to maintain this

going forward.

Liquidity risk

The Group manages its exposure to liquidity risk by reviewing cash

resources required to meet business objectives through both short and

long-term cash flow forecasts. The Company has committed facilities

which are available to be drawn for general corporate purposes including

working capital. The Treasury function has a policy of optimising the level

of cash in the businesses in order to minimise external borrowings.

Credit risk

The Group’s credit risk primarily arises from trade and other receivables.

The Group has a very low operational credit risk due to the transactions

being principally of a high volume, low value and short maturity. The

Group has no significant concentration of operational credit risk,

with the exposure spread over a large number of counterparties and

customers. Continued strong credit control ensured that in the year

ended 30 September 2014 the Group did not see deterioration in

days’ sales outstanding.

The credit risk on liquid funds is considered to be low, as the Board-

approved Group treasury policy limits the value that can be invested

with each approved counterparty to minimise the risk of loss.

All counterparties must meet minimum credit rating requirements.

Interest rate risk

The Group is exposed to interest rate risk on floating rate deposits and

borrowings. The US private placement loan notes, which comprise 80%

of borrowings, are at fixed interest rates and bank debt, which comprises

20% of borrowings, are at floating interest rates. At 30 September 2014,

the Group had £145m of cash and cash equivalents.

The Group regularly reviews forecast debt, cash and cash equivalents

and interest rates to monitor this risk. Interest rates on debt and deposits

are fixed when management decides this is appropriate. At 30 September

2014, the Group’s principal borrowings comprised US private placement

loan notes of £432m (2013: £432m), which have an average fixed interest

rate of 3.88%, and bank debt of £111m (2013: £10m), which has an

average floating interest rate of 1.21%. An explanation of this increase

is on page 46 of the Financial and operating review.

Foreign currency risk

Although a substantial proportion of the Group’s revenue and profit is

earned outside the UK, operating companies generally only trade in their

own currency. The Group is therefore not subject to any significant foreign

exchange transactional exposure within these subsidiaries. The Group’s

principal exposure to foreign currency, therefore, lies in the translation of

overseas profits into sterling.

This exposure is partly hedged to the extent that these profits are offset

by interest charges in the same currency arising from the financing of

the investment cost of overseas acquisitions by borrowings in the same

currency. The Group is also exposed to a foreign exchange transaction

exposure from the conversion of surplus cash generated by its principal

overseas subsidiaries, which would be hedged where appropriate.

The Group’s US Dollar denominated borrowings are designated as

a hedge of the net investment in its subsidiaries in the US. The foreign

exchange movements on translation of the borrowings into Sterling have

been recognised in the translation reserve. The Group’s other currency

exposures comprise only those exposures that give rise to net currency

gains and losses to be recognised in the income statement. Such

exposures reflect the monetary assets and liabilities of the Group that

are not denominated in the operating (or “functional”) currency of

the entity involved. At 30 September 2013 and 30 September 2014,

these exposures were immaterial to the Group.

Go

vern

an

ce

Fin

an

cia

l sta

tem

en

ts


Stra

teg

ic re

po

rt

Disclaimer

The purpose of this Annual Report & Accounts is to provide information

to the members of the Company. The Annual Report & Accounts has

been prepared for, and only for, the members of the Company, as a body,

and no other persons. The Company, its directors and employees, agents

or advisers do not accept or assume responsibility to any other person

to whom this document is shown or into whose hands it may come and

any such responsibility or liability is expressly disclaimed.

The Annual Report & Accounts contains certain forward-looking

statements with respect to the operations, performance and financial

condition of the Group. By their nature, these statements involve

uncertainty since future events and circumstances can cause results

and developments to differ materially from those anticipated. The

forward-looking statements reflect knowledge and information available

at the date of preparation of this Annual Report & Accounts and the

Company undertakes no obligation to update these forward-looking

statements. Nothing in this Annual Report & Accounts should be

construed as a profit forecast.

Statement of directors’ responsibilities

The directors are responsible for preparing the Annual Report & Accounts,

including the Directors’ remuneration report and the Group and parent

Company financial statements, in accordance with applicable law

and regulations.

Company law requires the directors to prepare financial statements

for each financial year. Under that law the directors have prepared the

Group financial statements in accordance with International Financial

Reporting Standards (“IFRS”) as adopted by the European Union (“EU”)

and the parent Company financial statements in accordance with United

Kingdom Generally Accepted Accounting Practice (United Kingdom

Accounting Standards and applicable law). Under company law, the

directors must not approve the financial statements unless they are

satisfied that they give a true and fair view of the state of affairs of the

Company and the Group and of the profit or loss of the Group and the

Company for that period.

In preparing these financial statements the directors are required to:

– Select suitable accounting policies and then apply them consistently

– Make judgements and estimates that are reasonable and prudent

– State whether IFRS as adopted by the EU, and applicable UK

Accounting Standards have been followed, subject to any material

departures disclosed and explained in the Group and parent

Company financial statements respectively

– Prepare the financial statements on the going concern basis,

unless it is inappropriate to presume that the Company will continue

in business

The directors are responsible for keeping adequate accounting records

that are sufficient to show and explain the Company’s transactions and

disclose with reasonable accuracy at any time the financial position of the

Company and the Group and to enable them to ensure that the financial

statements and the Directors’ remuneration report comply with the

Companies Act 2006 and, as regards the Group’s financial statements,

Article 4 of the International Accounting Standards Regulation. They are

also responsible for safeguarding the assets of the Company and the

Group and hence for taking reasonable steps for the prevention and

detection of fraud and other irregularities.

Directors’ statement

The directors as at the date of this report, whose names and functions

are listed in the Board of Directors on pages 62 to 63, confirm that:

– To the best of their knowledge, the Group’s financial statements,

which have been prepared in accordance with IFRS as adopted

by the EU, give a true and fair view of the assets, liabilities, financial

position and profit of the Group

– To the best of their knowledge, the Directors’ report and the

Strategic report include a fair review of the development and

performance of the business and the position of the Group, together

with a description of the principal risks and uncertainties that it faces

Each director as at the date of this report further confirms that:

– So far as the director is aware, there is no relevant audit information

of which the Company’s auditors are unaware

– The director has taken all the steps that he or she ought to have

taken as a director in order to make himself/herself aware of any

relevant audit information and to establish that the Company’s

auditors are aware of that information

This confirmation is given and should be interpreted in accordance

with the provisions of section 418 of the Companies Act 2006.

In addition, the directors as at the date of this report consider that the

Annual Report & Accounts, taken as a whole, is fair, balanced and

understandable and provides the information necessary for shareholders

to assess the Company’s and the Group’s performance, business

model and strategy.

By Order of the Board

M J Robinson,

Company Secretary

3 December 2014


Contents Group financial statements

Independent auditors’ report to the to the members of The Sage Group plc

99

Group financial statements

Our Group financial statements provide a complete picture

of our 2014 performance.

Consolidated income statement 104

Consolidated statement of comprehensive income 105

Consolidated balance sheet 106

Consolidated statement of changes in equity 107

Consolidated statement of cash flows 109

Notes to the Group financial statements

Supplementary notes to the Group financial statements.

1. Basis of preparation and critical accounting estimates and judgements 110

Results for the year

2. Segment information 112

3. Profit before income tax 116

4. Income tax expense 121

5. Earnings per share 122

Operating assets and liabilities

6. Intangible assets 124

7. Property, plant and equipment 127

8. Working capital 129

9. Post-employment benefits 132

10. Deferred income tax 135

11. Contingent liabilities 137

Net debt and capital structure

12. Cash flow and net debt 138

13. Financial instruments 140

14. Equity 143

Other notes

15. Acquisitions and disposals 150

16. Related party transactions 153

17. Events after the reporting period 153

18. Principal subsidiaries 153


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

ove

rnance

nanc

a s

aem

en

s

Independent auditors’ report to the members of The Sage Group plc

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Report on the group financial statements

Our opinion

In our opinion, The Sage Group plc’s group financial statements (the “financial statements”):

– give a true and fair view of the state of the group’s affairs as at 30 September 2014 and of its profit and cash flows for the year then ended;

– have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; and

– have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

What we have audited

The Sage Group plc’s financial statements comprise:

– the consolidated balance sheet as at 30 September 2014;

– the consolidated income statement and consolidated statement of comprehensive income for the year then ended;

– the consolidated statement of cash flows for the year then ended;

– the consolidated statement of changes in equity for the year then ended; and

– the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted

by the European Union.

Our audit approach

Overview

Materiality

– Overall group materiality: £16 million which represents 5% of adjusted profit before tax.

Audit scope

– We performed an audit of the complete financial information of 13 reporting units.

– Of these reporting units, the 3 most significant, representing 66% of the group by revenue and

77% by adjusted profit before tax, were visited by the group team during the audit process.

– The 13 reporting units where we performed audit work accounted for approximately 96% of

group revenue and 96% of the group by adjusted profit before tax.

Areas of focus

– Goodwill impairment assessment

– Revenue recognition

– Provisions for uncertain tax positions

– Archer litigation

The scope of our audit and our areas of focus

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we

looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions

and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal

controls, including evaluating whether there is evidence of bias by the directors that may represent a risk of material misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as

“areas of focus” in the table below together with an explanation of how we tailored our audit to address these specific areas. This is not a complete

list of all risks identified by our audit.

The results of our audit work on the areas below were based on the evidence obtained to support our opinion on the financial statements as a whole.

Materiality

Audit scope

Areas of focus


Independent auditors’ report to the members of The Sage Group plc continued

Area of focus How our audit addressed the area of focus

Goodwill impairment assessment

Refer to page 73 (Audit Committee Report), page 111 (Critical

accounting estimates and judgements), and pages 124-126 (notes).

We focused on this area due to the size of the goodwill balance

(£1,433.0 million as at 30 September 2014), and because the directors’

assessment of the ‘value in use’ of the group’s Cash Generating Units

(“CGUs”) involves judgements about the future results of the business

and the discount rates applied to future cash flow forecasts.

In particular, we focused our audit effort on goodwill recognised in relation

to the Brazil CGU due to the impairment charge of £44.3 million recognised

in the current year. The remaining goodwill balance related to Brazil is

approximately £76.8 million. The Brazilian business was acquired by the

group in 2012, but performance since acquisition has been impacted by a

general deterioration in the macroeconomic environment in Brazil, resulting

in the current year impairment.

The most significant element of the goodwill balance is that recognised on

the two US CGUs, SBS and SPS, totalling £687.7m. Although, based on

historical performance, the Directors believe there is significant headroom

between the value in use of the CGUs and their carrying value, this remained

an area of focus for us as a result of the size of the related goodwill balance.

We evaluated and challenged the composition of management’s future cash

flow forecasts, and the process by which they were drawn up. In particular, we

focused on whether they had identified all the relevant CGUs, including Brazil

and the US. We found that management had followed their clearly documented

process for drawing up the future cash flow forecasts, which was subject to

timely oversight and challenge by the Directors and which was consistent

with the Board approved budgets.

We compared the current year actual results with the FY14 figures

included in the prior year forecast to consider whether any forecasts included

assumptions that, with hindsight, had been optimistic. Actual performance

in Brazil was found to be lower than what had been expected and therefore

management has reflected actual FY14 revenue growth rates and operating

margins in this year’s model. We feel this judgement is appropriate given the

past performance of Brazil.

For all CGUs, and in particular, Brazil and the US we also challenged

management’s assumptions in the forecasts for:

– long term growth rates, by comparing them to economic and industry

forecasts; and

– the discount rate, by assessing the cost of capital for the company and

comparable organisations, as well as considering territory specific factors.

We found the assumptions to be consistent and in line with our expectations.

We challenged management on the adequacy of their sensitivity calculations

over all their identified CGUs. We determined that the calculations were most

sensitive to assumptions for revenue growth rates and discount rates. For all

CGUs other than Brazil we calculated the degree to which these assumptions

would need to move before an impairment conclusion was triggered. We

discussed the likelihood of such a movement with management and agreed

with their conclusion that it was unlikely.

In respect of Brazil we found the assumptions for revenue growth (11% per

annum), operating margin (26%) and discount rate (17%) to be acceptable

although note that any change in these assumptions would have a direct

impact on the impairment charge.

Revenue recognition

Refer to page 73 (Audit Committee Report), page 111 (Critical accounting

estimates and judgements), and page 116 (notes).

We focused on this area because the timing of revenue recognition and

its presentation in the income statement has inherent complexities in the

software industry. These mainly involve accounting for ‘bundled’ transactions

where software and maintenance and support elements are purchased

together, with the portion of the fee relating to software being recognised

immediately and the remainder of the revenue relating to maintenance

and support being deferred and recognised over the contractual period.

There is opportunity to misstate the allocation of revenue between the

software/licence and maintenance and support elements of each individual

transaction, especially when discounts to the list price are offered. As such,

there is the potential for error and for management manipulation of the

timing of revenue recognition.

There is also a risk of error in terms of the calculation of the deferral of

revenue, as systems in various territories are not standardised, with the

use of spreadsheets common across the group.

We tested the apportionment of revenue for licence, software and maintenance

and support was in compliance with Sage’s accounting manual and

recalculated the allocation between these elements of revenue on a sample of

transactions. Where discounts had been given we tested that they had been

appropriately allocated between the multiple revenue elements.

We also tested a sample of transactions to ensure that the amount of revenue

deferred was accurately calculated and appropriately recognised. This involved

agreeing revenue for maintenance and support services to invoice terms and

supporting calculations.

For transactions close to the period end we tested that cut-off procedures

were appropriately applied.

Additionally, where revenue was recorded through journal entries outside of

normal business processes we performed testing to establish whether a service

had been provided or a sale had occurred in the financial year to support the

revenue recognised.

No significant issues were noted from our work.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

nanc

a s

aem

en

s

Area of focus How our audit addressed the area of focus

Provisions for uncertain tax positions

Refer to page 73 (Audit Committee Report), page 111 (Critical

accounting estimates and judgements) and pages 121-122 (notes).

We focused on this area due to the judgement required in assessing the

level of provisions to cover the risk of challenge of certain of the group’s

tax positions. Provisions are held principally in respect of deferred tax

assets, current tax deductions previously taken and ongoing tax audits.

We evaluated and challenged management’s rationale for the level of provisions

held. We considered the status of recent and current tax audits and enquiries,

the outturn of previous claims and the macro-tax environment in each territory.

We obtained and assessed, where relevant, third party advice that management

had used to formulate the provisions. We also considered any penalty regimes

that could apply should any of the tax positions be successfully challenged.

From the evidence obtained we consider the level of provisioning to be

acceptable in the context of materiality. We note, however, that the assumptions

and judgements that are required to formulate the provisions mean that the

range of possible outturns is broad.

Archer litigation

Refer to page 47 (Strategic report), 73 (Audit Committee Report) and page

111 (Critical accounting estimates and judgements) and page 120 (notes).

A compensation claim against the group by Archer Capital for approximately

AUS$144m (£88m) is currently the subject of legal proceedings. This claim

is for compensation in respect of an aborted deal to acquire an Australian

software company. The court case took place early in FY14, and a judgment

is expected in the near future. We focused on this issue as there is uncertainty

as to the likely outcome. The Directors have not made a provision for

settlement on the basis they consider the likelihood of loss to be remote.

We discussed this issue with internal and external legal counsel and read

available external information in order to understand the latest position of the

proceedings and assess management’s views as to the strength of the claim

against the group. From the evidence obtained we agreed with management’s

decision not to make a provision. However, given the uncertainty involved,

the matter is not without risk.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,

taking into account the geographic structure of the group, the accounting processes and controls, and the industry in which the group operates.

The group’s trading operations are made up of operating businesses situated in a number of territories across the globe. The group financial statements

are a consolidation of 18 reporting units, comprising the group’s operating businesses and head office function.

In establishing the overall approach to the group audit, we determined the type of work that needed to be performed at the reporting units by us, as the

group engagement team, or component auditors within PwC UK and from other PwC network firms operating under our instruction. Where the work

was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able

to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the group financial statements as a whole.

Accordingly, of the group's 18 reporting units, we performed an audit of the complete financial information of 13 reporting units, which were selected

either due to their size, or their risk characteristics. This gave us coverage over 96% of the group by revenue. As part of our year end audit procedures,

the group team visited the UK, French and US component teams (the three most significant units in the group). These visits involved discussing the

audit approach and any issues arising from our work, as well as meeting local management. In addition to this, the group team attended all clearance

meetings, including Brazil, either in person or by call. This, together with additional procedures performed at the group level, gave us the evidence we

needed for our opinion on the group financial statements as a whole.

Materiality

The scope of our audit is influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with

qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate

the effect of misstatements, both individually and on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall group materiality £16 million (2013: £16 million).

How we determined it 5% of adjusted profit before tax (adjusted to add back the goodwill impairment charge of £44.3m).

Rationale for benchmark applied We believe that profit before tax, adjusted for exceptional costs, provides us with a consistent year on year

basis for determining materiality by eliminating the non-recurring disproportionate impact of these items.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.8 million (2013: £0.8 million)

as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.


Independent auditors’ report to the members of The Sage Group plc continued

Going concern

Under the Listing Rules we are required to review the directors’ statement, set out on page 93, in relation to going concern. We have nothing to report

having performed our review.

As noted in the directors’ statement, the directors have concluded that it is appropriate to prepare the financial statements using the going concern

basis of accounting. The going concern basis presumes that the group has adequate resources to remain in operation, and that the directors intend it

to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors’ use of the

going concern basis is appropriate.

However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the group’s ability to continue as

a going concern.

Other required reporting

Consistency of other information

Companies Act 2006 opinion

In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are

prepared is consistent with the financial statements.

ISAs (UK & Ireland) reporting

Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

– information in the Annual Report is:

– materially inconsistent with the information in the audited financial statements; or

– apparently materially incorrect based on, or materially inconsistent with, our knowledge of the

group acquired in the course of performing our audit; or

– otherwise misleading.

We have no exceptions to report arising

from this responsibility.

– the statement given by the directors on page 97, in accordance with provision C.1.1 of the UK

Corporate Governance Code (“the Code”), that they consider the Annual Report taken as a whole to

be fair, balanced and understandable and provides the information necessary for members to assess

the group’s performance, business model and strategy is materially inconsistent with our knowledge

of the group acquired in the course of performing our audit.



– the section of the Annual Report on page 72, as required by provision C.3.8 of the Code, describing

the work of the Audit Committee does not appropriately address matters communicated by us to the

Audit Committee.



Adequacy of information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we

require for our audit. We have no exceptions to report arising from this responsibility.

Directors’ remuneration

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law

are not made. We have no exceptions to report arising from this responsibility.

Corporate governance statement

Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the parent company’s compliance

with nine provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Statement of directors’ responsibilities set out on page 97, the directors are responsible for the preparation of the

financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).

Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part

16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose

or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

nanc

a s

aem

en

s

What an audit of financial statements involves

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the

financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

– whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed;

– the reasonableness of significant accounting estimates made by the directors; and

– the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and

evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis

for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report and Accounts (the “Annual Report”) to identify material

inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially

inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements

or inconsistencies we consider the implications for our report.

Other matter

We have reported separately on the parent company financial statements of The Sage Group plc for the year ended 30 September 2014 and on the

information in the Directors’ Remuneration Report that is described as having been audited.

Charles Bowman (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Newcastle upon Tyne

3 December 2014

(a) The maintenance and integrity of the The Sage Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


Consolidated income statement For the year ended 30 September 2014

Note

Underlying2014

£m

Adjustments(note 3.6)

2014£m

Statutory2014

£m

Underlying as reported *

2013 £m

Adjustments(note 3.6)

2013£m

Statutory2013

£m

Revenue 2.1 1,306.8 – 1,306.8 1,376.1 – 1,376.1

Cost of sales (74.5) – (74.5) (80.2) – (80.2)

Gross profit 1,232.3 – 1,232.3 1,295.9 – 1,295.9

Selling and administrative expenses (872.5) (61.4) (933.9) (920.1) (9.4) (929.5)

Loss on disposal of non-core products – – – – (185.9) (185.9)

Operating profit 2.2, 3.2, 3.3 359.8 (61.4) 298.4 375.8 (195.3) 180.5

Finance income 3.5 2.1 – 2.1 1.4 – 1.4

Finance costs 3.5 (22.2) (0.8) (23.0) (16.6) (1.2) (17.8)

Finance costs – net 3.5 (20.1) (0.8) (20.9) (15.2) (1.2) (16.4)

Profit before income tax 339.7 (62.2) 277.5 360.6 (196.5) 164.1

Income tax expense 4 (90.5) 0.7 (89.8) (99.2) (17.4) (116.6)

Profit for the year 249.2 (61.5) 187.7 261.4 (213.9) 47.5

Profit attributable to:

Owners of the parent 248.3 (61.5) 186.8 260.3 (213.9) 46.4

Non-controlling interest 14.6 0.9 – 0.9 1.1 – 1.1

249.2 (61.5) 187.7 261.4 (213.9) 47.5

Earnings per share attributable to the

owners of the parent (pence)

Basic 5 22.69p 17.07p 22.27p 3.97p

Diluted 5 22.65p 17.04p 22.23p 3.96p

All operations in the year relate to continuing operations.

* Underlying as reported is at 2013 reported exchange rates.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

ove

rnance

nanc

a s

aem

en

s

Consolidated statement of comprehensive income For the year ended 30 September 2014

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Note 2014

£m2013

£m

Profit for the year 187.7 47.5

Other comprehensive income/(expense):

Items that will not be reclassified to profit or loss:

Actuarial (loss)/gain on post-employment benefit obligations 14.4 (0.4) 1.1

Deferred tax credit/(charge) on actuarial loss on post-employment benefit obligations 4 0.4 (0.4)

– 0.7

Items that may be reclassified to profit or loss:

Exchange differences on translating foreign operations 14.3 (39.6) 28.4

Exchange differences recycled to the income statement in respect of the disposal of foreign operations 14.3 – (44.5)

(39.6) (16.1)

Other comprehensive expense for the year, net of tax (39.6) (15.4)

Total comprehensive income for the year 148.1 32.1

Total comprehensive income for the year attributable to:

Owners of the parent 147.2 31.0

Non-controlling interest 14.6 0.9 1.1

148.1 32.1


Consolidated balance sheet As at 30 September 2014

Note 2014

£m2013

£m

Non-current assets

Goodwill 6.1 1,433.0 1,515.2

Other intangible assets 6.2 98.1 113.5

Property, plant and equipment 7 126.7 128.8

Deferred income tax assets 10 21.9 18.7

1,679.7 1,776.2

Current assets

Inventories 8.1 2.0 2.2

Trade and other receivables 8.2 321.5 311.2

Cash and cash equivalents (excluding bank overdrafts) 12.3 144.6 100.8

468.1 414.2

Total assets 2,147.8 2,190.4

Current liabilities

Trade and other payables 8.3 (297.3) (287.6)

Current income tax liabilities (23.7) (35.7)

Borrowings 12.4 (125.4) (21.0)

Other financial liabilities 13.4 (60.1) (30.0)

Deferred consideration (3.5) (8.2)

Deferred income (402.7) (406.8)

(912.7) (789.3)

Non-current liabilities

Borrowings 12.4 (415.8) (440.6)

Other financial liabilities 13.4 – (54.2)

Post-employment benefits 9 (13.6) (12.9)

Deferred income tax liabilities 10 (19.1) (23.1)

Deferred income (2.7) –

(451.2) (530.8)

Total liabilities (1,363.9) (1,320.1)

Net assets 783.9 870.3

Equity attributable to owners of the parent

Ordinary shares 14.1 11.7 11.7

Share premium 535.9 532.2

Other reserves 14.3 88.8 60.4

Retained earnings 147.5 267.0

783.9 871.3

Non-controlling interest 14.6 – (1.0)

Total equity 783.9 870.3

The consolidated financial statements on pages 104 to 154 were approved by the Board of Directors on 3 December 2014 and are signed on their behalf by:

S Hare,



Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

ove

rnance

nanc

a s

aem

en

s

Consolidated statement of changes in equity For the year ended 30 September 2014

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Attributable to owners of the parent

Ordinary shares

£m

Share premium

£m

Other reserves

£m

Retained earnings

£m Total

£m

Non-controlling interest

£mTotal equity

£m

At 1 October 2013 11.7 532.2 60.4 267.0 871.3 (1.0) 870.3

Profit for the year – – – 186.8 186.8 0.9 187.7


Exchange differences on translating foreign

operations (note 14.3) – – (39.6) – (39.6) – (39.6)

Actuarial loss on post-employment benefit

obligations (note 9) – – – (0.4) (0.4) – (0.4)

Deferred tax credit on actuarial gain on

post-employment obligations (note 10) – – – 0.4 0.4 – 0.4

Total comprehensive (expense)/income

for the year ended 30 September 2014 – – (39.6) 186.8 147.2 0.9 148.1

Transactions with owners:

Employee share option scheme:

Proceeds from shares issued – 3.7 – – 3.7 – 3.7

Value of employee services, net of deferred tax – – – 7.8 7.8 – 7.8

Purchase of treasury shares (note 14.4) – – – (89.5) (89.5) – (89.5)

Expenses related to purchase of treasury shares – – – (0.2) (0.2) – (0.2)

Close period share buyback programme (note 13.4) – – – (30.1) (30.1) – (30.1)

Purchase of non-controlling interest (note 13.4) – – 68.0 (68.1) (0.1) 0.1 –

Dividends paid to owners of the parent (note 14.5) – – – (126.2) (126.2) – (126.2)

Total transactions with owners

for the year ended 30 September 2014 – 3.7 68.0 (306.3) (234.6) 0.1 (234.5)

At 30 September 2014 11.7 535.9 88.8 147.5 783.9 – 783.9


Consolidated statement of changes in equity continued

Attributable to owners of the parent

Ordinary shares

£m

Share premium

£m

Other reserves

£m

Retained earnings

£m Total £m

Non-controlling interest

£mTotal equity

£m

At 1 October 2012 13.3 524.5 76.5 760.8 1,375.1 (2.1) 1,373.0

Profit for the year – – – 46.4 46.4 1.1 47.5


Exchange differences on translating foreign operations

(note 14.3) – – 28.4 – 28.4 – 28.4

Exchange differences recycled to the income

statement in respect of the disposal of foreign

operations (note 14.3) – – (44.5) – (44.5) – (44.5)

Actuarial gain on post-employment benefit obligations

(note 9) – – – 1.1 1.1 – 1.1

Deferred tax charge on actuarial gain on post-

employment obligations – – – (0.4) (0.4) – (0.4)

Total comprehensive (expense)/income

for the year ended 30 September 2013 – – (16.1) 47.1 31.0 1.1 32.1

Transactions with owners:

Employee share option scheme:

Proceeds from shares issued – 7.7 – – 7.7 – 7.7

Value of employee services – – – 2.9 2.9 – 2.9

Purchase of treasury shares (note 14.4) – – – (251.0) (251.0) – (251.0)

Expenses related to purchase of treasury shares – – – (2.0) (2.0) – (2.0)

Close period share buyback programme (note 13.4) – – – 30.0 30.0 – 30.0

Cancellation of treasury shares (note 14.1) (1.6) – – – (1.6) – (1.6)

Dividends paid to owners of the parent (note 14.5) – – – (320.8) (320.8) – (320.8)

Total transactions with owners

for the year ended 30 September 2013 (1.6) 7.7 – (540.9) (534.8) – (534.8)

At 30 September 2013 11.7 532.2 60.4 267.0 871.3 (1.0) 870.3


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

ove

rnance

nanc

a s

aem

en

s

Consolidated statement of cash flows For the year ended 30 September 2014

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Note 2014 £m

2013 £m

Cash flows from operating activities

Cash generated from continuing operations 12.1 382.4 417.4

Interest paid (21.6) (12.6)

Income tax paid (107.2) (118.6)

Net cash generated from operating activities 253.6 286.2

Cash flows from investing activities

Acquisitions of subsidiaries, net of cash acquired 15.1 (14.1) (14.7)

Acquisition of other financial assets – (6.0)

Disposal of subsidiaries, net of cash disposed 15.4 – 81.4

Purchases of intangible assets 6.2 (8.3) (9.6)

Purchases of property, plant and equipment 7 (19.7) (14.1)

Proceeds from sale of property, plant and equipment 1.1 4.7

Interest received 3.5 2.1 1.4

Net cash generated from investing activities (38.9) 43.1

Cash flows from financing activities

Proceeds from issuance of ordinary shares 3.7 7.7

Purchase of treasury shares (91.0) (251.0)

Purchase of non-controlling interest 13.4 (50.4) –

Finance lease principal payments (1.9) (1.1)

Proceeds from borrowings 171.0 514.1

Repayments of borrowings (71.8) (256.5)

Movements in cash collected from customers 15.5 9.5

Dividends paid to owners of the parent 14.5 (126.2) (320.8)

Net cash used in financing activities (151.1) (298.1)

Net increase in cash, cash equivalents and bank overdrafts

(before exchange rate movement) 12.2 63.6 31.2

Effects of exchange rate movement (2.8) (2.7)

Net increase in cash, cash equivalents and bank overdrafts 60.8 28.5

Cash, cash equivalents and bank overdrafts at 1 October 12.2 82.9 54.4

Cash, cash equivalents and bank overdrafts at 30 September 12.2 143.7 82.9


Basis of preparation and critical accounting estimates and judgements

1 Basis of preparation and critical accounting estimates and judgements

Accounting policies applicable across the financial statements are shown below. Accounting policies that are specific to a component of the financial

statements have been incorporated into the relevant note.

Basis of preparation

The consolidated financial statements of The Sage Group plc have been prepared in accordance with International Financial Reporting Standards

(“IFRS“) as adopted by the European Union (“EU“) and International Financial Reporting Standards Interpretations Committee (“IFRIC“) interpretations as

adopted by the EU. The consolidated financial statements have been prepared under the historical cost convention, except where adopted IFRS require

an alternative treatment. The principal variations from the historical cost convention relate to derivative financial instruments which are measured at fair

value through profit or loss.

The financial statements of the Group comprise the financial statements of the Company and entities controlled by the Company (its subsidiaries)

prepared at the end of the reporting period. The accounting policies have been consistently applied across the Group. Control is achieved where the

Company has the power to govern the financial and operating policies of an entity so as to benefit from its activities.

New or amended accounting standards

The following amended standards have been adopted in the financial statements. These have not had a material impact.

Accounting standard Requirement Impact on financial statements

IAS 19 (revised 2011), “Employee Benefits” This introduces changes to the recognition,

measurement, presentation and disclosure of

post-employment benefits. The effect of this

standard is to remove the previous concept of

recognising an expected return on plan assets.

The Group operates two small defined benefit

schemes (the majority of the Group’s employees

are members of defined contribution schemes),

therefore the impact is minimal. We have made

some minor updates to the wording in the

disclosure note however no restatement has

been made on the grounds of materiality.

IFRS 13, “Fair Value Measurement” This introduces the requirement for entities to

classify fair value measurements into a “fair value

hierarchy” based on the nature of the inputs.

The disclosure in note 13.1 has been updated

to include the fair value hierarchy.

The following new or amended standards have been adopted in the financial statements but have had no impact on the financial statements.

– Amendment to IAS 1, “Presentation of Financial Statements”

– Amendment to IAS 16, “Property, Plant and Equipment”

– Amendments to IFRS 1, “First-time Adoption of International Financial Reporting Standards”

– Amendment to IFRS 7, “Financial Instruments: Disclosures”

– Amendment to IAS 12, “Income taxes on deferred tax”

Going concern

The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic

report on pages 2 to 59.

Having made reasonable enquiries, the directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future,

a period of not less than 12 months from the date of this report. Accordingly, the consolidated financial statements have been prepared on a going

concern basis and in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Foreign currencies

The consolidated financial statements are presented in sterling, which is the functional currency of the parent Company and the presentation currency

for the consolidated financial statements.

Foreign currency transactions are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign currency monetary items are

translated at the rates prevailing at the end of the reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies

are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical

cost in a foreign currency are not retranslated.

Exchange differences arising on the settlements of monetary items and on the retranslation of monetary items are included in profit or loss for the

period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except

for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised outside profit or loss. For such

non-monetary items, any exchange component of that gain or loss is also recognised outside profit or loss.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

The assets and liabilities of the Group’s subsidiaries outside of the UK are translated into sterling using period end exchange rates. Income and

expense items are translated at the average exchange rates for the period. Where differences arise between these rates, they are recognised in other

comprehensive income and the translation reserve.

When a foreign operation is partially disposed of or sold, exchange differences that were recorded in other comprehensive income are recycled in the

income statement as part of the gain or loss on sale, with the exception of exchange differences recorded in equity prior to the transition to IFRS on

1 October 2004, in accordance with IFRS 1, “First-time Adoption of International Financial Reporting Standards”.

Critical accounting estimates and judgements

The preparation of financial statements requires the use of accounting estimates and assumptions by management. It also requires management to

exercise its judgement in the process of applying the accounting policies. We continually evaluate our estimates, assumptions and judgements based

on available information. The areas involving a higher degree of judgement or complexity are described below.

Revenue recognition

The key area of judgement in respect of recognising revenue is the timing of recognition, specifically in relation to recognition and deferral of revenue

on licence, support and other contracts where management assumptions and estimates are necessary.

For instance, when products are bundled together for the purpose of sale, the associated revenue, net of any applicable discounts, is allocated between

the constituent parts of the bundle on a relative fair value basis, which determines the pattern of revenue recognition. The Group has a systematic basis

for allocating relative fair values in these situations, based upon published list prices. In the limited circumstances in which published list prices are not

available, a prudent approach is taken, whereby any discounts are recognised immediately. See note 3.1 for the revenue recognition policy.

Goodwill impairment

The judgements in relation to goodwill impairment testing relate to the assumptions applied in calculating the value in use of the operating companies

being tested for impairment and the ongoing appropriateness of the cash-generating units (“CGUs”) for the purpose of impairment testing. The key

assumptions applied in the calculation relate to the future performance expectations of the business. The carrying value of goodwill and the key

assumptions used in performing the annual impairment assessment are disclosed in note 6.1.

Archer Capital litigation

The claim for damages made by Archer Capital in relation to the potential purchase of MYOB continues to be strongly rejected by management.

Based on supporting expert legal advice, management do not consider there to be a present obligation and the possibility of an outflow of resources

is remote. As such, no provision or contingent liability has been recognised in these financial statements.

Tax provisions

The Group recognises certain provisions and accruals in respect of tax which involve a degree of estimation and uncertainty where the tax treatment

cannot be finally determined until a resolution has been reached by the relevant tax authority. Management bases estimates of the likely outcome of

decisions by tax authorities on transactions and events whose treatment for tax purposes is uncertain.

Future accounting standards

The directors also considered the impact on the Group of other new and revised accounting standards, interpretations or amendments. The following

revised and new accounting standards are currently endorsed but not yet effective for the Group for the year ended 30 September 2014. None are

expected to be material to the financial statements.

– Amendment to IAS 27, “Separate Financial Statements”

– Amendment to IAS 28, “Investments in Associates and Joint Ventures”

– Amendment to IAS 32, “Financial Instruments: Presentation”

– Amendment to IAS 36, “Impairment of Assets”

– Amendment to IAS 39, “Financial Instruments: Recognition and Measurement”

– IFRS 10, “Consolidated Financial Statements”

– IFRS 11, “Joint Arrangements”

– IFRS 12, “Disclosure of Interests in Other Entities”

– IFRIC 21, “Levies”

– IFRS 15, “Revenue from contracts with customers” is expected to be effective from 1 January 2017. The directors would not usually look so far

ahead at new accounting standards; however, it is expected that this new standard may have a significant impact on revenue recognition for the

software industry



2 Segment information

This note shows how Group revenue and Group operating profit are split across the three geographical regions in which we operate, being

Europe, Americas and Africa, Australia, Middle East and Asia (“AAMEA”).

For each geographical region, revenue and operating profit are compared to prior year in order to understand the movements in the year.

This comparison is provided for statutory, underlying and organic revenue and operating profit.

– Statutory results are the IFRS statutory results.

– Underlying is a non-GAAP measure. Adjustments are made to statutory results to arrive at an underlying result which is in line with how the

business is managed and measured on a day to day basis. Adjustments are made for items that are individually important in order to understand

the financial performance. If included, these items could distort understanding of the performance for the year and the comparability between

periods. See note 3.6 for details of these adjustments. In addition, the prior year underlying values are translated at current exchange rates,

so that exchange rate impacts do not distort comparisons.

– Organic is a non-GAAP measure. The contributions of current and prior year acquisitions and disposals are removed, so that results can be

compared to prior year on a like for like basis.

In addition, the following reconciliations are made in this note.

– Revenue per region reconciled to the profit for the year as per the income statement.

– Statutory operating profit reconciled to underlying operating profit per region (detailing the adjustments made).

Accounting policy

In accordance with IFRS 8, “Operating Segments”, information for the Group’s operating segments has been derived using the information used

by the chief operating decision maker. The Group’s Executive Committee has been identified as the chief operating decision maker in accordance

with their designated responsibility for the allocation of resources to operating segments and assessing their performance. The Executive Committee

use organic and underlying data to monitor business performance. Operating segments are reported in a manner which is consistent with the

operating segments produced for internal management reporting.

The Group is organised into three operating segments. The UK is the home country of the parent. The main operations are in the following territories:

– Europe (France, UK & Ireland, Spain, Germany, Switzerland, Poland, Portugal and Sagepay)

– Americas (US, Brazil and Canada)

– AAMEA (Africa, Australia, Middle East and Asia)

The Africa operations are principally based in South Africa; the Middle East and Asia operations are principally based in Singapore, Malaysia and UAE.

Segment reporting

The tables below show a segmental analysis of the results for continuing operations.

The revenue analysis in the table below is based on the location of the customer which is not materially different from the location where the order is

received and where the assets are located.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

2.1 Revenue by segment

Year ended 30 September 2014 Change

Statutory

£m

Underlyingadjustments

£mUnderlying

£m

Organic adjustments

£mOrganic

£m Statutory

%Underlying

%Organic

%

Recurring revenue by segment

Europe 535.8 – 535.8 (0.3) 535.5 0% 3% 7%

Americas 334.8 – 334.8 – 334.8 -6% 1% 6%

AAMEA 81.0 – 81.0 – 81.0 -3% 14% 14%

Recurring revenue 951.6 – 951.6 (0.3) 951.3 -3% 3% 7%

Software and software related services (“SSRS”) revenue by segment

Europe 214.6 – 214.6 (0.1) 214.5 -11% -9% -4%

Americas 77.2 – 77.2 – 77.2 -15% -8% 2%

AAMEA 63.4 – 63.4 – 63.4 -6% 10% 10%

SSRS revenue 355.2 – 355.2 (0.1) 355.1 -11% -6% -1%

Total revenue by segment

Europe 750.4 – 750.4 (0.4) 750.0 -3% -1% 4%

Americas 412.0 – 412.0 – 412.0 -8% 0% 5%

AAMEA 144.4 – 144.4 – 144.4 -4% 12% 12%

Total revenue 1,306.8 – 1,306.8 (0.4) 1,306.4 -5% 0% 5%

Year ended 30 September 2013

Statutory £m

Underlying adjustments

£m

Underlying as reported

£m

Impact of foreign

exchange £m

Underlying £m

Organic adjustments

£mOrganic

£m

Recurring revenue by segment

Europe 535.2 – 535.2 (12.5) 522.7 (21.8) 500.9

Americas 357.5 – 357.5 (27.2) 330.3 (13.3) 317.0

AAMEA 83.4 – 83.4 (12.1) 71.3 (0.3) 71.0

Recurring revenue 976.1 – 976.1 (51.8) 924.3 (35.4) 888.9

Software and software related services (“SSRS”) revenue by segment

Europe 241.7 – 241.7 (4.6) 237.1 (13.6) 223.5

Americas 90.7 – 90.7 (7.1) 83.6 (7.6) 76.0

AAMEA 67.6 – 67.6 (10.0) 57.6 (0.1) 57.5

SSRS revenue 400.0 – 400.0 (21.7) 378.3 (21.3) 357.0

Total revenue by segment

Europe 776.9 – 776.9 (17.1) 759.8 (35.4) 724.4

Americas 448.2 – 448.2 (34.3) 413.9 (20.9) 393.0

AAMEA 151.0 – 151.0 (22.1) 128.9 (0.4) 128.5

Total revenue 1,376.1 – 1,376.1 (73.5) 1,302.6 (56.7) 1,245.9


Results for the year continued

2 Segment information continued

2.2 Operating profit by segment

Year ended 30 September 2014 Change

Statutory

£m


£mUnderlying

£m

Organic adjustments

£mOrganic

£mStatutory

% Underlying

%Organic

%

Operating profit by segment

Europe 206.4 8.4 214.8 – 214.8 33% 0% 6%

Americas 53.0 52.8 105.8 – 105.8 487% 2% 8%

AAMEA 39.0 0.2 39.2 – 39.2 1% 10% 11%

Total operating profit 298.4 61.4 359.8 – 359.8 65% 1% 7%


Statutory

£m


£m

Underlying as reported

£m

Impact of foreign

exchange £m

Underlying £m

Organic adjustments

£mOrganic

£m

Operating profit by segment

Europe 155.7 64.5 220.2 (4.9) 215.3 (11.7) 203.6

Americas (13.7) 128.7 115.0 (10.9) 104.1 (5.9) 98.2

AAMEA 38.5 2.1 40.6 (5.0) 35.6 (0.3) 35.3

Total operating profit 180.5 195.3 375.8 (20.8) 355.0 (17.9) 337.1

The results by segment from continuing operations were as follows:

Year ended 30 September 2014 NoteEurope

£mAmericas

£m AAMEA

£mGroup

£m

Revenue 750.4 412.0 144.4 1,306.8

Segment statutory operating profit 206.4 53.0 39.0 298.4

Finance income 3.5 2.1

Finance costs 3.5 (23.0)

Profit before income tax 277.5

Income tax expense 4 (89.8)

Profit for the year 187.7

No single customer contributed more than 10% of the Group’s revenue in the current or prior year.

Reconciliation of underlying operating profit to statutory operating profit

Europe

£mAmericas

£m AAMEA

£mGroup

£m

Underlying operating profit 214.8 105.8 39.2 359.8

Amortisation of acquired intangible assets (6.9) (7.3) (0.3) (14.5)

Fair value adjustments and goodwill impairment – (44.7) – (44.7)

Acquisition-related items (0.1) (0.8) 0.1 (0.8)

Litigation costs (1.4) – – (1.4)

Statutory operating profit 206.4 53.0 39.0 298.4


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

The results by segment from continuing operations were as follows:

Year ended 30 September 2013 NoteEurope

£mAmericas

£m AAMEA

£mGroup

£m

Revenue 776.9 448.2 151.0 1,376.1

Segment statutory operating profit/(loss) 155.7 (13.7) 38.5 180.5

Finance income 3.5 1.4

Finance costs 3.5 (17.8)

Profit before income tax 164.1

Income tax expense 4 (116.6)

Profit for the year 47.5


Reconciliation of underlying operating profit previously reported

to statutory operating profit Europe

£mAmericas

£m AAMEA

£mGroup

£m

Underlying operating profit as previously reported 220.2 115.0 40.6 375.8

Amortisation of acquired intangible assets (10.0) (8.4) (0.7) (19.1)

Fair value adjustments and goodwill impairment – 13.5 (1.4) 12.1

Acquisition-related items – (0.1) – (0.1)

Loss on disposal and litigation costs (54.5) (133.7) – (188.2)

Statutory operating profit/(loss) 155.7 (13.7) 38.5 180.5



3 Profit before income tax

This note sets out the Group’s revenue recognition policy. It also analyses the Group’s profit before tax, by looking in more detail at the key

operating costs, including a breakdown of the costs incurred as an employer, research and development costs, the cost of the external audit

of the Group’s financial statements and finance costs.

In addition, this note analyses the future amounts payable under operating lease agreements, which the Group has entered into as at the

year-end. These commitments are not included as liabilities on the consolidated balance sheet.

This note also provides a breakdown of any material and non-recurring costs that have been reported separately on the face of the

income statement.

3.1 Revenue

Accounting policy

Revenue is measured at the fair value of the consideration received or receivable and represents amounts received or receivable for goods and

services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

The Group reports revenue under two revenue categories, being;

1. Recurring revenue: including subscription contracts (including pay as you go contracts), maintenance and support, combined software/support

service contracts and payment processing services.

Subscription contract revenue and maintenance and support revenue is recognised on a straight-line basis over the term of the contract (including

non-specified upgrades when included). Revenue relating to future periods is classified as deferred income on the balance sheet.

Payment processing services revenue is recognised when the outcome of such transactions can be estimated reliably; the associated revenue is

recognised by reference to the stage of completion of the transaction at the end of the reporting period.

2. Software and software-related services: including perpetual software licences, upgrades and other software-related services such as business

forms, professional services and training.

Perpetual software licences and specified upgrades revenue is recognised when the significant risks and rewards of ownership relating to the licence

have been transferred and it is probable that the economic benefits associated with the transaction will flow to the Group. This is deemed to be when

the goods have left the warehouse to be shipped to the customer or when electronic delivery has taken place.

Other product revenue (which includes business forms and hardware) is recognised as the products are shipped to the customer.

Where software is sold with after-sales service, the consideration is allocated between the different elements on a relative fair value basis.

When products are bundled together before being sold to the customer, it is necessary to apply the recognition criteria to the separately identifiable

components of a single transaction in order to reflect the substance of the transaction. If discounts on bundles are offered, the discount is applied

to the constituent parts of the bundle, based upon fair value.

Other services (which include the sale of professional services and training) revenue associated with the transaction is recognised by reference to the

stage of completion of the transaction at the end of the reporting period.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

3.2 Operating profit

The following items have been included in arriving at operating profit Note 2014

£m 2013

£m

Staff costs 3.3 616.8 621.9

Cost of inventories recognised as an expense (included in cost of sales) 8.1 12.5 14.2

Depreciation of property, plant and equipment 7 18.0 20.0

Amortisation of intangible assets 6.2 24.5 28.5

Fair value adjustments and goodwill impairment 3.6 44.7 (12.1)

Loss on disposal of property, plant and equipment 12.1 0.8 0.8

Loss on disposal of intangible assets 12.1 – 0.1

Other operating lease rentals payable 28.8 20.9

Net foreign exchange losses/(gains) 0.1 (0.4)

Acquisition-related items 3.6 0.8 0.1

Research and development expenditure 6.2 131.2 144.6

Services provided by the Group’s auditors and network firms

During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors at costs as detailed below:

2014 £m

2013 £m

Fees payable to the Group’s auditors for the audit of the Plc’s companies and the consolidated accounts 0.3 0.3

Fees payable to the Group’s auditors for the audit of the Company’s subsidiaries 1.7 1.6

Fees payable to the Group’s auditors for audit-related assurance services 0.1 0.1

Total audit fees 2.1 2.0

Tax compliance services 0.6 0.6

Tax advisory services 0.3 0.4

Other non-audit services 0.1 0.3

Total fees 3.1 3.3

The total audit fee for the Group, including the audit of overseas subsidiaries, was £2.1m (2013: £2.0m).

The Board’s policy in respect of the procurement of non-audit services for the Group’s auditor is set out on page 75.



3 Profit before income tax continued

3.3 Employees and directors

Average monthly number of people employed (including directors) 2014

number2013

number

By geographical location:

Europe 7,071 7,620

Americas 3,529 3,497

AAMEA 1,994 2,124

12,594 13,241

Staff costs (including directors on service contracts) Note 2014

£m 2013

£m

Wages and salaries 503.4 517.1

Social security costs 94.4 90.5

Post-employment benefits 9 11.0 11.4

Share-based payments 14.2 8.0 2.9

616.8 621.9

Key management compensation 2014 £m

2013 £m

Salaries and short-term employee benefits 5.9 6.4

Post-employment benefits 0.5 0.5

Share-based payments 1.4 1.3

7.8 8.2

The key management figures given above include directors. Key management personnel are deemed to be members of the Executive Committee as

shown on page 64.

3.4 Operating lease commitments

Accounting policy

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease.

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

2014 2013

Total future minimum lease payments under non-cancellable operating leases falling due for payment as follows:

Property, vehicles, plant

and equipment £m

Property, vehicles, plant and equipment

£m

Within one year 29.5 33.6

Later than one year and less than five years 77.0 88.1

After five years 29.8 34.1

136.3 155.8

The Group leases various offices and warehouses under non-cancellable operating lease agreements. These leases have various terms, escalation

clauses and renewal rights. The Group also leases vehicles, plant and equipment under non-cancellable operating lease agreements.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

3.5 Finance income and costs

Accounting policy

Finance income and costs are recognised using the effective interest method. Finance costs are recognised in the income statement simultaneously

with the recognition of an increase in a liability or the reduction in an asset.

2014 £m

2013 £m

Finance income: interest income on short-term deposits 2.1 1.4

Finance costs:

Finance costs on bank borrowings (4.6) (1.4)

Finance costs on US senior loan notes (16.4) (14.4)

Amortisation of issue costs (1.2) (0.9)

Imputed interest on put and call arrangement to acquire non-controlling interest and deferred consideration (0.8) (1.1)

Finance costs (23.0) (17.8)

Finance costs – net (20.9) (16.4)

3.6 Adjustments between underlying and statutory results

Accounting policy

The business is managed and measured on a day to day basis using underlying results. To arrive at underlying results, certain adjustments are made

for items that are individually important and which could, if included, distort the understanding of the performance for the year and the comparability

between periods.

Management apply judgement in determining which items should be excluded from underlying performance.

Recurring items

These are items which occur each year but which management judge to have a distorting effect on the underlying results of the Group. These

items relate specifically to merger & acquisition (“M&A”) activity which by its nature is irregular in its impact. Items falling within this category include

amortisation, fair value adjustments and acquisition related costs. These do not include operating or integration costs related to the acquisition.

Recurring items are adjusted each year irrespective of materiality to ensure consistent treatment.

Non-recurring items

These are items which management judge to be of a one-off nature or non-operational, which would distort a reader of the Company’s

accounts understanding of underlying business performance.



3 Profit before income tax continued

3.6 Adjustments between underlying and statutory results continued

Recurring2014

£m

Non-recurring

2014£m

Total

2014 £m

Recurring

2013

£m

Non-recurring

2013

£m

Total

2013£m

Acquisition related items

Amortisation of acquired intangibles 14.5 – 14.5 19.1 – 19.1

Fair value adjustments 0.4 – 0.4 (13.5) – (13.5)

Litigation costs – 1.4 1.4 – 2.3 2.3

Other acquisition-related items 0.8 – 0.8 0.1 – 0.1

Other items

Goodwill impairment – 44.3 44.3 – 1.4 1.4

Loss on disposal of non-core products – – – – 185.9 185.9

Total adjustments made to operating profit 15.7 45.7 61.4 5.7 189.6 195.3

Acquisition related items

Imputed interest on put and call arrangements to acquire non-controlling

interest and deferred consideration 0.8 – 0.8 1.2 – 1.2

Total adjustments made to profit before income tax 16.5 45.7 62.2 6.9 189.6 196.5

Recurring items

Acquired intangibles are assets which have previously been recognised as part of business combinations. These assets are predominantly brands,

customer relationships and technology rights. Further details including specific accounting policies in relation to these assets can be found in note 6.2.

The fair value adjustment relates to the accounting loss on the settlement of the put and call arrangement to acquire 25% of the share capital of the

Brazilian sub-group from the non-controlling interest holder. This transaction occurred in August 2014. Further details can be found in note 13.4.

The adjustment relating to acquisition-related items is made up of the cost of carrying out business combinations in the year (£2.4m, 2013: £0.1m),

partly offset by the net release of earn-out liabilities on previous acquisitions (£1.6m). Further details can be found in note 15.3.

The imputed interest adjustment on the put and call arrangement relates to the accounting adjustment made during the year to discount this liability to its

present value. This entry was made up until the liability was settled in August 2014. As above, further details can be found in note 13.4.

Non-recurring items

As a result of the annual goodwill impairment review, an impairment of the goodwill held in the Brazilian business has been identified in the year. This

impairment is driven by economic conditions in Brazil and a re-measurement of the future performance of Brazil performed by management. Further

details can be found in note 6.1.

The adjustment relating to litigation costs relates to the defence of the Archer Capital case, which is strongly rejected by management. We have engaged

in a vigorous defence of the case resulting in these non-recurring litigation costs. Based upon legal advice, no provision or contingent liability has been

recognised in these financial statements. All other litigation costs which may be incurred through the normal course of business are charged through

operational expenses.

The loss on disposals in the prior year was incurred as a result of the disposal of non-core products. There are no such costs in the current year.

See note 4 for the tax impact of these adjustments.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

4 Income tax expense

This note analyses the tax charge for this financial year which includes both current and deferred tax. Current tax expense represents the amount

payable on this year’s taxable profits and any adjustments relating to prior years. Deferred tax is an accounting adjustment to provide tax that is

expected to arise in the future due to differences between accounting and tax bases.

This note outlines the tax accounting policies, the current and deferred tax charges in the year and presents a reconciliation of profit before tax in the

income statement to the tax charge.

Accounting policy

The taxation charge for the year represents the sum of the tax currently payable and deferred tax. The charge is recognised in the income statement

and statement of comprehensive income according to the accounting treatment of the related transaction.

Current tax payable or receivable is based on the taxable income for the period and any adjustment in respect of prior periods. Current tax is

calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities in the financial statements and the

corresponding tax bases.

Analysis of charge in the year Note 2014 £m

2013 £m

Current tax

– Current tax on profit for the year 101.4 136.6

– Adjustment in respect of prior years (4.2) (6.3)

Current tax 97.2 130.3

Deferred tax

– Origination and reversal of temporary differences (5.3) (13.6)

– Adjustment in respect of prior years (2.1) (0.1)

Deferred tax 10 (7.4) (13.7)

The current year tax charge is split into the following:

Underlying tax charge 90.5 99.2

Tax (credit)/charge on adjustments between the underlying and statutory operating profit (0.7) 17.4

Income tax expense 89.8 116.6

The majority of the current tax adjustment in respect of prior years of £4.2m (2013: £6.3m) reflects the resolution of a number of historical tax matters

with the tax authorities.

2014 £m

2013 £m

Tax on items credited to other comprehensive income

Deferred tax (credit)/charge on actuarial loss on post-employment benefit obligations (0.4) 0.4

Total tax on items (credited)/charged to other comprehensive income/equity (0.4) 0.4



4 Income tax expense continued

The tax for the year is higher (2013: higher) than the standard rate of corporation tax in the UK of 22% (2013: 23.5%) The differences are explained below: Note

2014 £m

2013 £m

Statutory profit on ordinary activities before income tax 277.5 164.1

Adjustments 3.6 62.2 196.5

Underlying profit on ordinary activities before income tax 339.7 360.6

Underlying profit on ordinary activities multiplied by rate of corporation tax in the UK of 22% (2013: 23.5 %) 74.7 84.7

Tax effects of:

Adjustments in respect of prior years (6.3) (6.4)

Adjustments in respect of foreign tax rates 22.0 24.1

Non-deductible expenses and permanent items net of non-taxable income and other credits (0.6) (1.7)

Local business tax 2.8 3.3

Tax credits (2.1) (2.4)

Utilisation of unrecognised losses – (2.4)

Underlying tax charge 90.5 99.2

Tax (credited)/charged on adjustments between underlying and statutory results (0.7) 17.4

Total statutory income tax 89.8 116.6

The underlying effective tax rate of 27% (2013: 28%) is higher than the UK’s statutory rate of tax due to the geographic profile of the Group. In

addition, there is an obligation to account for local business taxes in the corporate tax charge. These additional tax charges are offset by research

and development tax credits which are a government incentive in a number of operating territories.

5 Earnings per share

This note shows how earnings per share (“EPS”) is calculated. EPS is the amount of post-tax profit attributable to each ordinary share. Basic EPS

is calculated on profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year.

Diluted EPS shows what the impact would be if all outstanding share options were exercised and treated as ordinary shares at the year-end.

This note also provides a reconciliation between the statutory profit figure, which ties to the primary statements on page 104, and the Group’s internal

measure of performance, underlying profit. See note 3.6 for details of the adjustments made between statutory and underlying profit, and note 4

for the tax impact on these adjustments.

Accounting policy

Basic earnings per share is calculated by dividing the profit for the year by the weighted average number of ordinary shares in issue during the year,

excluding those held as treasury shares, which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential

ordinary shares. The Group has one class of dilutive potential ordinary shares. They are share options granted to employees where the exercise

price is less than the average market price of the Company’s ordinary shares during the year.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Reconciliations of the earnings and weighted average number of shares Underlying

2014Underlying

2013 Statutory

2014Statutory

2013

Earnings (£m)

Profit for the year 248.3 260.3 186.8 46.4

Number of shares (millions)

Weighted average number of shares 1,094.4 1,168.8 1,094.4 1,168.8

Dilutive effects of shares 1.7 2.0 1.7 2.0

1,096.1 1,170.8 1,096.1 1,170.8

Earnings per share

Basic earnings per share (pence) 22.69 22.27 17.07 3.97

Diluted earnings per share (pence) 22.65 22.23 17.04 3.96

Reconciliation between statutory and underlying earnings per share 2014

£m2013

£m

Earnings: Statutory profit for the year 186.8 46.4

Adjustments:

Intangible amortisation excluding amortisation of acquired intangible assets 14.5 19.1

Other acquisition-related items 0.8 0.1

Goodwill impairment and fair value adjustments 44.7 (12.1)

Litigation costs 1.4 2.3

Loss on disposal of non-core products – 185.9

Imputed interest on put and call arrangement to acquire non-controlling interest and deferred consideration 0.8 1.2

Taxation on adjustments (0.7) 17.4

Net adjustments 61.5 213.9

Earnings – underlying profit for the year (before exchange movement) 248.3 260.3

Exchange movement (10.6)

Taxation on exchange movement (4.5)

Net exchange movement (15.1)

Earnings – underlying profit for the year (after exchange movement) 248.3 245.2

Exchange movement relates to the retranslation of prior year results to current year exchange rates as shown in the table on page 47 within the

financial review.


Ove

rvie

w

Stra

teg

ic re

po

rtG

overn

ance

Fin

ancia

l sta

tem

ents


6 Intangible assets

This note provides details of the non-physical assets used by the Group to generate revenues and profits. These assets include items such as

goodwill, and other intangible assets such as brands, customer relationships, computer software, intellectual property and technology which have

predominantly been acquired as part of business combinations. These assets are initially measured at fair value, meaning the best estimate of the

value for which these assets could be sold in an arm’s length transaction.

Goodwill represents the excess between the amount paid to acquire the businesses over the fair value of the net assets at the acquisition date.

This section also explains the accounting policies applied and the specific judgements and estimates made by the directors in arriving at the carrying

value of these assets.

6.1 Goodwill

Accounting policy

Goodwill arising from the acquisition of a subsidiary represents the excess of the consideration transferred, the amount of any non-controlling

interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s total

identifiable net assets acquired. Goodwill is carried at cost less accumulated impairment losses.

Goodwill previously written-off directly to reserves under UK GAAP prior to 1 October 1998 has not been reinstated and is not recycled to the

income statement on the disposal of the business to which it relates. Gains and losses on disposal of the entity include the carrying amount of the

foreign exchange on the goodwill relating to the entity sold (except for goodwill taken to reserves prior to the transition to IFRS on 1 October 2004).

Goodwill is allocated to cash-generating units (“CGUs”) for the purpose of impairment testing. The recoverable amount of the CGU to which the

goodwill relates is tested annually for impairment or when events or changes in circumstances indicate that it might be impaired.

Goodwill is allocated to CGUs expected to benefit from the synergies of the combination and the allocation represents the lowest level at which

goodwill is monitored.

Note 2014

£m2013 £m

Cost at 1 October 1,516.6 1,814.4

– Additions 15.1 7.6 11.8

– Disposals 15.4 – (319.0)

– Exchange movement (47.5) 9.4

At 30 September 1,476.7 1,516.6

Impairment at 1 October 1.4 –

– Impairment in the year 44.3 1.4

– Exchange movement (2.0) –

At 30 September 43.7 1.4

Net book amount at 30 September 1,433.0 1,515.2

Details of acquisitions and disposals in the year are shown in note 15.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Goodwill impairment tests

The following table shows the allocation of the carrying value of goodwill at the end of the reporting period by CGU:

2014 £m

2013 £m

France 196.7 212.2

UK & Ireland 180.6 180.6

Spain 112.9 121.2

Sage Pay Europe 24.2 25.1

Germany 31.4 26.4

Switzerland 32.8 34.7

Poland 6.2 6.5

Portugal 4.9 4.1

North America

– Sage Business Solutions Division 533.6 533.2

– Sage Payment Solutions Division 154.1 156.1

Brazil 76.8 130.8

South Africa 39.7 40.6

Australia 20.4 24.8

Asia 18.7 18.9

1,433.0 1,515.2

The Group conducts annual impairment tests by comparing the carrying value of goodwill in the CGU to the recoverable amount of the CGU.

The recoverable amounts of CGUs are determined as the higher of fair value less costs to sell and the value-in-use. In determining value-in-use,

estimated future cash flows are discounted to their present value.

In all cases, the approved plans for the five years following the current financial year form the basis for the cash flow projections for a CGU. Beyond

the five year plan these projections are extrapolated using an estimated long-term growth rate. The key assumptions in the value-in-use calculations

are the average medium term revenue growth rate, the long-term operating margin and the long-term growth rate of net operating cash flows.

– The average medium-term revenue growth rate for the first five years is primarily based on past performance. The average revenue growth

rate applied to CGU’s was in the range of 1% (2013: 2%) to 15% (2013: 14%) reflecting the specific rates for each territory.

– The long-term operating margin assumed for a CGU’s operations is primarily based on past performance. The long-term operating margin applied

to CGUs was in the range of 26% (2013: 20%) to 62% (2013: 47%), reflecting the specific rates for each territory.

– Long-term growth rates of net operating cash flows are assumed to be equal to the long-term growth rate in the gross domestic product of the

country in which the CGU’s operations are undertaken and were in the range of 1.3% (2013: 1.8%) to 5.1% (2013: 5.8%) reflecting the specific

rates for each territory.

Discount rate

The Group uses a discount rate based on a local Weighted Average Cost of Capital (“WACC”) for each CGU, applying local government yield bonds

and tax rates to each CGU on a geographical basis. The discount rate applied to a CGU represents a pre-tax rate that reflects the market assessment

of the time value of money at the end of the reporting period and the risks specific to the CGU. The discount rates applied to CGUs were in the range

of 6.03% (2013: 4.4%) to 17.05% (2013: 13.65%), reflecting the specific rates for each territory.

Impairment charge

The Group performed its annual test for impairment, in the fourth quarter of 2014. The recoverable amount exceeded the carrying value for all CGUs

with the exception of Brazil (Americas segment). An impairment of £44.3m was recognised, driven by economic uncertainty in Brazil which is expected

to continue in the future. Management remain confident in the long-term contribution of Brazil to the Group.

Following the impairment, the recoverable amount of the Brazilian CGU is £76.8m. The key assumptions used in the impairment calculation for Brazil

were revenue growth of 11% per annum, long term operating margin of 26%, long term growth of 3.8%, and discount rate of 17.05% (2013: 13.65%).


Operating assets and liabilities continued

6 Intangible assets continued

Sensitivity analysis

A sensitivity analysis was performed for each of the other CGU’s to determine the headroom on the impairment calculation. Management believes

that no reasonably possible change in any of the above key assumptions would cause the carrying value of any CGU, other than Brazil, to exceed its

recoverable amount.

6.2 Other intangibles

Accounting policy

Intangible assets arising on business combinations are initially held at fair value less accumulated amortisation and impairment losses. The main

intangible assets recognised are brands, technology and customer relationships.

Amortisation is charged to the income statement on a straight-line basis over their estimated useful lives.

The estimated useful lives are as follows:

Brand names – 3 to 20 years

Technology/In process R&D (“IPR&D”) – 3 to 7 years

Customer relationships – 4 to 15 years

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses if applicable.

Software assets are amortised on a straight-line basis over their estimated useful lives, which do not exceed seven years.

The carrying value of intangibles is reviewed for impairment whenever events indicate that the carrying value may not be recoverable.

Internally generated software development costs qualify for capitalisation if the Group can demonstrate all of the following:

– The technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete the intangible

asset and use or sell it;

– Its ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits;

– The existence of a market or, if it is to be used internally, the usefulness of the intangible asset;

– The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;

– Its ability to measure reliably the expenditure attributable to the intangible asset during development.

Management have determined that to date, internally generated software has been available for general release concurrent with the establishment of

technological feasibility and, accordingly, development costs have not been capitalised. Costs which are incurred after the general release of internally

generated software or costs which are incurred in order to enhance existing products are expensed in the period in which they are incurred and

included within research and development expense in the financial statements (see note 3.2).

Brands

£mTechnology

£m

Acquired IPR&D

£m

Internal IPR&D

£m

Computer software

£m

Customer relationships

£mTotal

£m

Cost at 1 October 2013 38.6 88.2 0.4 5.6 60.3 108.6 301.7

– Additions 0.2 0.5 – – 7.5 0.1 8.3

– Acquisition of subsidiaries – – – – – 6.6 6.6

– Disposals – – – – (0.8) (0.2) (1.0)

– Exchange movement (2.1) (5.4) (0.1) – (2.6) (3.5) (13.7)

At 30 September 2014 36.7 83.3 0.3 5.6 64.4 111.6 301.9

Accumulated amortisation at 1 October 2013 20.5 65.1 0.4 5.6 20.9 75.7 188.2

– Charge for the year 2.4 5.9 – – 10.0 6.2 24.5

– Disposals – – – – (0.8) – (0.8)

– Exchange movement (1.0) (3.4) (0.1) – (1.7) (1.9) (8.1)

At 30 September 2014 21.9 67.6 0.3 5.6 28.4 80.0 203.8

Net book amount at 30 September 2014 14.8 15.7 – – 36.0 31.6 98.1


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Brands

£mTechnology

£m

Acquired IPR&D

£m

Internal IPR&D

£m

Computer software

£m

Customer relationships

£mTotal £m

Cost at 1 October 2012 40.5 97.9 0.4 5.6 52.9 121.2 318.5

– Additions – – – – 9.6 – 9.6

– Disposal of subsidiaries (2.3) (10.5) – – (1.8) (13.0) (27.6)

– Disposals – – – – (0.2) – (0.2)

– Exchange movement 0.4 0.8 – – (0.2) 0.4 1.4

At 30 September 2013 38.6 88.2 0.4 5.6 60.3 108.6 301.7

Accumulated amortisation at 1 October 2012 18.4 64.3 0.4 5.6 13.9 76.1 178.7

– Charge for the year 2.7 8.6 – – 9.4 7.8 28.5

– Disposals – – – – (0.2) – (0.2)

– Disposal of subsidiaries (0.9) (9.1) – – (1.6) (9.0) (20.6)

– Exchange movement 0.3 1.3 – – (0.6) 0.8 1.8

At 30 September 2013 20.5 65.1 0.4 5.6 20.9 75.7 188.2

Net book amount at 30 September 2013 18.1 23.1 – – 39.4 32.9 113.5

All amortisation charges in the year have been charged through selling and administrative expenses.

7 Property, plant and equipment

This note details the physical assets used by the Group to operate the business and generate revenues and profits. Assets are shown at their

initial purchase price less depreciation, which is an expense that is charged over the useful life of these assets to reflect annual wear and tear.

Accounting policy

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation on property, plant and

equipment is provided on a straight-line basis down to an asset’s residual value over its useful economic life as follows:

Freehold buildings – 50 years

Long leasehold buildings and improvements – over period of lease

Plant and equipment – 2 to 7 years

Motor vehicles – 4 years

Office equipment – 5 to 7 years

Freehold land is not depreciated.

The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term.

The carrying value of property, plant and equipment is reviewed for impairment whenever events indicate that the carrying value may not

be recoverable.



7 Property, plant and equipment continued

Land and buildings

£m

Plant and equipment

£m

Motor vehicles and office

equipment £m

Total £m

Cost at 1 October 2013 94.1 141.6 54.1 289.8

– Additions 2.3 11.6 5.8 19.7

– Disposals (2.8) (8.8) (7.2) (18.8)

– Acquisition of subsidiaries – – 0.2 0.2

– Exchange movement (1.1) (2.7) (3.0) (6.8)

At 30 September 2014 92.5 141.7 49.9 284.1

Accumulated depreciation at 1 October 2013 15.3 106.4 39.3 161.0

– Charge for the year 3.0 11.0 4.0 18.0

– Disposals (2.6) (8.4) (5.9) (16.9)

– Exchange movement (0.5) (2.2) (2.0) (4.7)

At 30 September 2014 15.2 106.8 35.4 157.4

Net book amount at 30 September 2014 77.3 34.9 14.5 126.7

Assets held under finance leases with a net book value of £1.5m (2013: £1.9m) are included in the above table.

Land and buildings

£m

Plant and equipment

£m

Motor vehicles and office

equipment £m

Total £m

Cost at 1 October 2012 99.5 141.9 55.3 296.7

– Additions 1.2 8.9 4.0 14.1

– Disposals (3.7) (5.0) (3.4) (12.1)

– Acquisition of subsidiaries – 0.1 0.1 0.2

– Disposal of subsidiaries (2.8) (3.9) (2.5) (9.2)

– Exchange movement (0.1) (0.4) 0.6 0.1

At 30 September 2013 94.1 141.6 54.1 289.8

Accumulated depreciation at 1 October 2012 13.8 102.5 38.2 154.5

– Charge for the year 3.4 11.7 4.9 20.0

– Disposals (0.9) (4.3) (3.0) (8.2)

– Disposal of subsidiaries (1.0) (3.5) (1.1) (5.6)

– Exchange movement – – 0.3 0.3

At 30 September 2013 15.3 106.4 39.3 161.0

Net book amount at 30 September 2013 78.8 35.2 14.8 128.8

Depreciation expenses of £18.0m (2013: £20.0m) have been charged through selling and administrative expenses (note 3.2).


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

8 Working capital

This note provides the amounts invested by the Group in working capital balances at the end of the financial year. Working capital is made up of

inventories, trade and other receivables and trade and other payables.

Inventories mainly consist of warehouse stock of Sage products, awaiting shipment to business partners or distributors. Trade and other receivables

are made up of amounts owed to us by customers and amounts that we pay to our suppliers in advance. Trade receivables are shown net of an

allowance for bad and doubtful debts. Our trade and other payables are amounts we owe to our suppliers that have been invoiced to us or accrued

by us. They also include taxes and social security amounts due in relation to our role as an employer.

This note also gives some additional detail on the age and recoverability of our trade receivables, which allows readers to better understand any credit

risk faced by the Group as a part of everyday trading.

8.1 Inventories

Accounting policy

Inventories are stated at the lower of cost and net realisable value after making allowances for slow moving or obsolete items.

Cost includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Cost is calculated using the

first-in-first-out method.

2014

£m2013

£m

Materials 0.7 0.5

Finished goods 1.3 1.7

2.0 2.2

The Group consumed £12.5m (2013: £14.2m) of inventories, included in cost of sales, during the year. There was no material write down of inventories

during the current or prior year.

8.2 Trade and other receivables

Accounting policy

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision

for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts

due according to the original terms of the receivables.



8 Working capital continued

8.2 Trade and other receivables continued

Amounts falling due within one year: 2014

£m 2013

£m

Trade receivables 311.0 302.3

Less: provision for impairment of receivables (25.5) (27.7)

Trade receivables – net 285.5 274.6

Other receivables 20.8 22.8

Prepayments and accrued income 15.2 13.8

321.5 311.2

The Group’s credit risk on trade and other receivables is primarily attributable to trade receivables. The Group has no significant concentrations of credit

risk since the risk is spread over a large number of unrelated counterparties. The directors estimate that the carrying value of financial assets within trade

and other receivables approximated their fair value.

The Group considers the credit quality of trade and other receivables by geographical location. The Group considers that the carrying value of the

trade and other receivables that is disclosed below gives a fair presentation of the credit quality of the assets. This is considered to be the case as

there is a low risk of default due to the high number of recurring customers and credit control policies; thus the carrying value is expected to be the final

value received.

Trade and other receivables (excluding prepayments and accrued income) by geographical location: 2014

£m 2013

£m

Europe 212.8 203.7

Americas 70.2 72.8

AAMEA 23.3 20.9

306.3 297.4

Movements on the Group provision for impairment of trade receivables were as follows: 2014

£m 2013

£m

At 1 October 27.7 30.3

Disposal of subsidiaries – (2.3)

Increase in provision for receivables impairment 6.4 10.0

Receivables written-off during the year as uncollectible (4.5) (6.0)

Unused amounts reversed (2.7) (3.5)

Exchange movement (1.4) (0.8)



Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

In determining the recoverability of a trade receivable, the Group considers the ageing of each receivable and any change in the circumstances of

the individual receivables. The directors believe that there is no further provision required in excess of the provision for impairment of receivables.

The creation and releases of the provision for impaired receivables have been included in selling and administrative expenses in the income statement.

Amounts charged to the provision are generally written-off when there is no expectation of recovering additional cash.

At 30 September 2014, trade receivables of £29.8m (2013: £33.4m) were either partially or fully impaired.

The ageing of these receivables was as follows: 2014

£m 2013

£m

Not due 4.7 3.1

Less than six months past due 7.1 7.3

More than six months past due 18.0 23.0

29.8 33.4

Trade receivables which were past their due date but not impaired at 30 September 2014 were £33.7m (2013: £46.3m).

The ageing of these receivables was as follows: 2014

£m 2013

£m

Less than six months past due 31.3 41.1

More than six months past due 2.4 5.2

33.7 46.3

The maximum exposure to credit risk at the end of the reporting period is the fair value of each class of receivables mentioned above. The Group held

no collateral as security. The directors estimate that the carrying value of trade receivables approximated their fair value.

8.3 Trade and other payables

Accounting policy

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Trade and other payables can be analysed as follows: 2014

£m 2013

£m

Trade payables 41.5 46.4

Other tax and social security payable 52.9 63.8

Other payables 71.1 46.5

Accruals 131.8 130.9

297.3 287.6



9 Post-employment benefits

This note explains the accounting policies governing the Group’s pension schemes, analyses the deficit on the defined benefit pension scheme and

shows how it has been calculated.

The majority of the Group’s employees are members of defined contribution pension schemes; additionally the Group does operate two small

defined benefit schemes in France and Switzerland.

For defined contribution schemes, the Group pays contributions into separate funds on behalf of the employee and has no further obligations to

employees. The risks associated with this type of plan are assumed by the member. Contributions paid by the Group in respect of the current period

are included in the income statement.

The defined benefit scheme is a pension arrangement under which participating members receive a pension benefit at retirement determined by the

scheme rules, salary and length of pensionable service. The income statement charge for the defined benefit scheme is the current/past service cost

and the net interest cost which is the change in the net defined benefit liability that arises from the passage of time. The Group underwrites both

financial and demographic risks associated with this type of plan.

Accounting policy

Obligations under defined contribution schemes are recognised as an operating cost in the income statement as incurred.

The Group also operates a small defined benefit pension scheme in Switzerland and other post-employment benefit schemes in France. The assets

of these schemes are held separately from the assets of the Group. The costs of providing benefits under these schemes are determined using the

projected unit credit actuarial valuation method. Under French legislation, the Group is required to make one-off payments to employees in France

who reach retirement age while still in employment.

The current service cost and gains and losses on settlements and curtailments are included in selling and administrative expenses in the income

statement. Past service costs should be recognised on the earlier of the date of the plan amendment and the date the Group recognises

restructuring-related costs. Interest on the net defined benefit liability and the imputed interest on pension plan liabilities comprise the pension

element of the net finance cost/income in the income statement.

Changes in the post-employment benefit obligation due to experience and changes in actuarial assumptions are included in the statement

of comprehensive income in full in the period in which they arise.

The liability recognised in the balance sheet in respect of the defined benefit pension scheme is the present value of the defined benefit obligation

and unrecognised past service cost and future administration costs at the end of the reporting period, less the fair value of plan assets. The defined

benefit obligation is calculated annually by independent actuaries. The present value of the defined benefit obligation is determined by discounting the

estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be

paid and that have terms to maturity approximate to the terms of the related pension liability.

The calculation of the defined benefit obligation of a defined benefit plan requires estimation of future events, for example salary and pension

increases, inflation and mortality rates. In the event that future experience does not bear out the estimates made in previous years, an adjustment will

be made to the plan’s defined benefit obligation in future periods which could have a material effect on the Group.

The Group adopted IAS 19 (revised), “Employee benefits”, in the year. The impact of this is not material to the Group so restated results have not

been prepared.

Pension costs included in the Consolidated income statement Note 2014

£m 2013

£m

Defined contribution schemes 9.0 9.2

Defined benefit plans 2.0 2.2

3.3 11.0 11.4


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Defined benefit plans

The most recent actuarial valuations of the post-employment benefit plans were performed by Ernst & Young in October 2014.

Weighted average principal assumptions made by the actuaries 2014

% 2013

%

Rate of increase in pensionable salaries 2.13 2.90

Rate of increase in pensions in payment and deferred pensions 0.00 0.00

Discount rate 1.70 2.55

Inflation assumption 2.00 1.55

Mortality rate assumptions made by the actuaries 2014

years2013

years

Average life expectancy for 65-year-old male 22.2 20.8

Average life expectancy for 65-year-old female 24.5 25.0

Average life expectancy for 45-year-old male 42.4 32.9

Average life expectancy for 45-year-old female 45.0 39.2

Amounts recognised in the balance sheet 2014 £m

2013 £m

Present value of funded obligations (30.8) (30.3)

Fair value of plan assets 17.2 17.4

Net liability recognised in the balance sheet (13.6) (12.9)

Major categories of plan assets as a percentage of total plan assets £m2014

% £m2013

%

Bonds 9.3 54.1 9.2 52.9

Equities 4.6 26.7 4.8 27.6

Property – – – –

Other 3.3 19.2 3.4 19.5

17.2 100.0 17.4 100.0

Expected contributions to post-employment benefit plans for the year ending 30 September 2015 are £1.1m (2013: expected contributions year ending

30 September 2014 £1.6m).

Amounts recognised in the income statement 2014

£m2013

£m

Net interest costs on obligation (0.4) (0.4)

Current service cost (1.6) (1.8)

Total included within staff costs (2.0) (2.2)

The entire cost is included within selling and administrative expenses.



9 Post-employment benefits continued

Changes in the present value of the defined benefit obligation 2014

£m 2013

£m

At 1 October (30.3) (30.8)

Exchange movement 1.8 (1.8)

Disposal – 2.3

Service cost (1.6) (1.8)

Plan participant contributions (0.6) (0.7)

Interest cost (0.8) (0.8)

Benefits paid 1.3 2.2

Curtailments – 0.4

Actuarial (loss)/gain on benefit obligation (0.6) 0.7

At 30 September (30.8) (30.3)

Changes in the fair value of plan assets 2014

£m 2013

£m

At 1 October 17.4 16.5

Exchange movement (1.0) 0.5

Interest income 0.4 0.4

Employer’s contributions 0.9 0.9

Plan participant contributions 0.6 0.7

Disposal – (2.0)

Benefits paid (1.3) –

Actuarial gain on plan assets 0.2 0.4


Analysis of the movement in the balance sheet liability 2014

£m 2013

£m

At 1 October (12.9) (14.3)

Exchange movement 0.8 (1.3)

Disposal – 0.3

Total expense as recognised in the income statement (2.0) (2.2)

Benefits paid/curtailments – 2.6

Contributions paid 0.9 0.9

Actuarial (loss)/gain (0.4) 1.1

At 30 September (13.6) (12.9)


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

History of experience gains and losses 2014

£m2013 £m

2012 £m

2011 £m

2010 £m

Present value of defined benefit obligation (30.8) (30.3) (30.8) (29.5) (26.2)

Fair value of plan assets 17.2 17.4 16.5 17.8 14.9

Deficit (13.6) (12.9) (14.3) (11.7) (11.3)

Experience adjustments on plan liabilities (0.6) 0.7 0.5 (1.5) 0.1

Experience adjustments on plan assets 0.2 0.4 2.1 0.5 0.2

Cumulative actuarial gains and losses recognised outside profit or loss 2014

£m 2013

£m

At 1 October (0.2) (1.3)

Actuarial (loss)/gain recognised in the year (before tax) (0.4) 1.1

At 30 September (0.6) (0.2)

10 Deferred income tax

Deferred income tax is an accounting adjustment to provide for tax that is expected to arise in the future due to differences in accounting and tax

bases. In this note we outline the accounting policies, movements in the year on the deferred tax account and the net deferred tax asset or liability at

the year-end.

A deferred tax asset represents a tax reduction that is expected to arise in a future period.

A deferred tax liability represents taxes which will become payable in a future period as a result of a current or an earlier transaction.

Accounting policy

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is

probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not

recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and

liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to

control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on tax rates

that have been enacted or substantively enacted at the end of the reporting period.

Tax assets and liabilities are offset when there is a legally enforceable right.

Deferred income tax has been calculated at 20% (2013: 21.0%) in respect of UK companies (being the corporation tax rate at which timing

differences are expected to reverse) and at the prevailing rates for the overseas subsidiaries.

The Finance Act 2013, which was substantively enacted on 17 July 2013, includes legislation reducing the main rate of UK corporation tax to

21% from 1 April 2014 and a further reduction to 20% from 1 April 2015, both of which were substantively enacted during the year, and therefore

have been reflected in the tax balances below.



10 Deferred income tax continued

The movement on the deferred tax account is as shown below: 2014

£m 2013

£m

At 1 October (4.4) (19.5)

Income statement credit 7.4 13.7

Disposal/acquisition of subsidiaries 0.3 4.8


Other comprehensive income/equity movement in deferred tax 0.4 (1.4)

Transfer from current income tax liabilities – –

At 30 September 2.8 (4.4)

Deferred tax assets have been recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets because it is

probable that these assets will be recovered. These have been included within the “Other” category.

No deferred tax is recognised on the unremitted earnings of overseas subsidiaries. As the earnings are continually reinvested by the Group, no tax is

expected to be payable on them in the foreseeable future.

The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12, “Income

Taxes”) during the year are shown below.

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.

Assets

Intangible assets

£m Other

£mTotal

£m

At 1 October 2013 (9.0) 27.7 18.7

Income statement credit (0.2) 1.4 1.2

Disposal/acquisition of subsidiaries – 0.3 0.3

Reclassification to deferred tax liability – 2.9 2.9

Change in tax rate – 0.5 0.5

Other comprehensive income/equity movement in deferred tax – 0.4 0.4

Exchange movement 0.6 (2.7) (2.1)

At 30 September 2014 (8.6) 30.5 21.9

Liabilities

At 1 October 2013 (12.3) (10.8) (23.1)

Income statement credit 3.0 3.2 6.2

Reclassification from deferred tax asset – (2.9) (2.9)

Change in tax rate – (0.5) (0.5)

Exchange movement 1.0 0.2 1.2

Reclassification to other deferred tax 4.6 (4.6) –

At 30 September 2014 (3.7) (15.4) (19.1)

Net deferred tax (liability)/asset at 30 September 2014 (12.3) 15.1 2.8


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Assets

Intangible assets

£m Other

£mTotal £m

At 1 October 2012 (1.2) 11.2 10.0


Disposal of subsidiaries – 4.4 4.4

Reclassification to deferred tax liability (11.2) 14.0 2.8

Reclassification to other deferred tax 0.2 (0.2) –

Other comprehensive income/equity movement in deferred tax – (1.3) (1.3)

Exchange movement – (1.9) (1.9)

At 30 September 2013 (9.0) 27.7 18.7

Liabilities

At 1 October 2012 (19.9) (9.6) (29.5)


Disposal of subsidiaries 0.4 – 0.4

Reclassification from deferred tax asset 11.2 (14.0) (2.8)

Reclassification to other deferred tax (7.8) 7.8 –

Exchange movement 0.8 (0.9) (0.1)

Other comprehensive income/equity movement in deferred tax – (0.1) (0.1)

At 30 September 2013 (12.3) (10.8) (23.1)

Net deferred tax (liability)/asset at 30 September 2013 (21.3) 16.9 (4.4)

11 Contingent liabilities

In this note we give details of any contingent liabilities that exist at the year-end. The use of the word ‘contingent’ means that the future obligation to

make a payment is in question or the amount which would have to be paid is uncertain, to the extent that it could not be reliably estimated.

Accounting policy

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence

of one or more uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that

an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that

cannot be recognised because it cannot be measured reliably. The Group does not recognise a contingent liability but discloses its existence in the

financial statements.

In the acquisition of subsidiaries by the Group under business combinations, contingent liabilities assumed are measured initially at their fair value at

the acquisition date, irrespective of the extent of any minority interest.

The Group had no contingent liabilities at 30 September 2014 (2013: none). At any given time, in the normal course of business, events may arise,

including litigation, which may require the Group to consider the recognition criteria for contingent liabilities. Having considered all current facts and

circumstances, the Group considers the likelihood of a material outflow of resources to be remote and therefore no amounts are provided or disclosed

in these financial statements.


Ove

rvie

w

Stra

teg

ic re

po

rtG

overn

ance

Fin

ancia

l sta

tem

ents


12 Cash flow and net debt

This note analyses our operational cash generation, shows the movement in our net debt in the year, and explains what is included within our cash

balances and borrowings at the year-end.

Cash generated from operations is the starting point of our cash flow statement on page 109. This section outlines the adjustments for any non-cash

accounting items to reconcile our accounting profit for the year to the amount of physical cash we generated from our operations.

Net debt represents the amount of cash held less borrowings, overdrafts and finance lease payments due.

Borrowings are mostly made up of fixed-term external debt which the Group has taken out in order to finance acquisitions in the past.

12.1 Cash flow generated from continuing operations

Reconciliation of profit for the year to cash generated from continuing operations 2014

£m 2013

£m

Profit for the year 187.7 47.5

Adjustments for:

Income tax 89.8 116.6

Finance income (2.1) (1.4)

Finance expenses 23.0 17.8

Amortisation of intangible assets 24.5 28.5

Depreciation of property, plant and equipment 18.0 20.0

Loss on disposal of non-core products – 184.6

Loss on disposal of property, plant and equipment 0.8 0.8

Loss on disposal of intangible assets – 0.1

Equity-settled share-based transactions 8.0 2.9

Fair value adjustments and goodwill impairment 44.7 (8.1)


Changes in working capital (excluding effects of acquisitions and disposals of subsidiaries):

– Decrease in inventories 0.1 0.2

– Increase in trade and other receivables (20.5) (18.7)

– Increase in trade and other payables 8.8 20.9

– Increase in deferred income 10.6 9.0

Cash generated from continuing operations 382.4 417.4

12.2 Net debt

Reconciliation of net cash flow to movement in net debt (inclusive of finance leases) 2014

£m 2013

£m

Increase in cash in the year (pre-exchange movements) 63.6 31.2

Cash outflow from movement in loans, finance leases and cash collected from customers (112.8) (266.0)

Change in net debt resulting from cash flows (49.2) (234.8)

Acquisitions – (0.2)

Non-cash movements (0.9) (0.8)

Exchange movement (2.8) 13.0

Movement in net debt in the year (52.9) (222.8)

Net debt at 1 October (384.3) (161.5)

Net debt at 30 September (437.2) (384.3)


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Analysis of change in net debt (inclusive of finance leases)

At 1 October 2013

£mCash flow

£m

Non-cash movements

£m

Exchange movement

£m

At 30 September

2014 £m

Cash and cash equivalents 100.8 46.7 – (2.9) 144.6

Bank overdrafts (17.9) 16.9 – 0.1 (0.9)

Cash, cash equivalents and bank overdrafts 82.9 63.6 – (2.8) 143.7

Finance leases due within one year (1.1) 1.1 (1.1) – (1.1)

Loans due within one year (2.1) 2.1 (120.5) (2.9) (123.4)

Loans due after more than one year (439.9) (99.7) 119.6 4.6 (415.4)

Finance leases due after more than one year (0.7) (0.8) 1.1 – (0.4)

Cash collected from customers (23.4) (15.5) – (1.7) (40.6)

Total (384.3) (49.2) (0.9) (2.8) (437.2)

Included in cash above is £40.6m (2013: £23.4m) relating to cash collected from customers, which the Group is contracted to pay on to another party.

A liability for the same amount is included in trade and other payables on the balance sheet and is classified within net debt above.

12.3 Cash and cash equivalents (excluding bank overdrafts)

Accounting policy

For the purpose of preparation of the Consolidated statement of cash flows and the Consolidated balance sheet, cash and cash equivalents include

cash at bank and in hand and short-term deposits with an original maturity period of three months or less. Bank overdrafts that are an integral part

of a subsidiary’s cash management are included in cash and cash equivalents where they have a legal right of set-off and there is an intention to

settle net, against positive cash balances, otherwise bank overdrafts are classified as borrowings.

2014 £m

2013 £m

Cash at bank and in hand 103.6 76.2

Cash held on behalf of customers 40.6 23.4

Short-term bank deposits 0.4 1.2

144.6 100.8

The Group’s credit risk on cash and cash equivalents is limited because the counterparties are well established banks with high credit ratings.

12.4 Borrowings

Accounting policy

Assets held under finance leases are initially recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum

lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance

lease obligation.

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing

borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over

the period of borrowing on an effective interest basis.


Net debt and capital structure continued

12 Cash flow and net debt continued

12.4 Borrowings continued

Current 2014 £m

2013 £m

Bank overdrafts 0.9 17.9

Finance lease obligations 1.1 1.0

Unsecured loans 123.4 2.1

125.4 21.0

Non-current 2014 £m

2013 £m

US senior loan notes – unsecured 307.4 430.3

Bank loans – unsecured 108.0 9.6

Finance lease obligations 0.4 0.7

415.8 440.6

Included in loans above is £538.8m (2013: £442.0m) of unsecured loans (after unamortised issue costs). These borrowings were utilised for

acquisitions and managing the Group’s minimum leverage target of 1x net debt to EBITDA via its share buyback programme.

The Group has US$300.0m (£185.0m, 2013: £185.3m) of US senior loan notes, which were issued into the US private placement market in 2010.

These notes mature US$200.0m (£123.4m, 2013: £123.5m) in 2015, US$50.0m (£30.8m, 2013: £30.9m) in 2016 and US$50.0m (£30.8m, 2013:

£30.9m) in 2017 and carry fixed interest coupons of 4.39%, 4.78% and 5.15% respectively.

A further US$400.0m (£246.8m, 2013: £247.0m) of US senior loan notes were issued into the US private placement market during 2013. These

notes mature US$50.0m (£30.8m, 2013: £30.9m) in 2018, US$150.0m (£92.6m, 2013: £92.6m) in 2020, US$150.0m (£92.6m, 2013: £92.6m)

in 2023 and US$50.0m (£30.8m, 2013: £30.9m) in 2025 and carry fixed interest coupons of 2.60%, 3.08%, 3.71% and 3.86% respectively.

There were £110.5m drawings (2013: £9.6m) under the multi-currency revolving credit facility of £509.8m (2013: £346.2m) expiring on 26 June

2019, which consists both of US$551.0m (£339.9m, 2013: £167.3m) and of €218.0m (£169.9m, 2013: £178.9m) tranches.

In the table above, bank loans and loan notes are stated net of unamortised issue costs of £3.5m (2013: £2.0m). The Group has in the year incurred

total issue costs amounting to £2.6m (2013: £1.3m) in respect of the refinancing of its revolving credit facility renewal. These issue costs were

paid during the year ended 30 September 2014. These costs are allocated to the income statement over the term of the facility using the effective

interest method.

13 Financial instruments

This note shows details of the fair value and carrying value of short and long term borrowings, trade and other payables, trade and other receivables,

short-term bank deposits, cash at bank and in hand and other financial liabilities. These items are all classified as “financial instruments” under

accounting standards. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties

in an arm’s length transaction.

In order to assist users of these financial statements in making an assessment of any risks relating to financial instruments, this note also shows the

ageing of these items and analyses their sensitivity to changes in key inputs, such as interest rates and foreign exchange rates.

Accounting policy

Financial assets and liabilities are recognised in the Group’s balance sheet when the Group becomes party to the contractual provision

of the instrument.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

13.1 Fair values of financial instruments

For the following financial assets and liabilities: long-term borrowings, short-term borrowings, trade and other payables excluding tax and social security,

trade and other receivables excluding prepayments and accrued income, short-term bank deposits, cash at bank and in hand and other financial

liabilities, the carrying amount approximates the fair value of the instrument with the exception of long-term borrowings due to these bearing interest

at fixed rates which are currently higher than floating rates.

The fair value of the long-term borrowings is determined by reference to interest rate movements on the US $ private placement market and therefore

can be considered as a level 2 fair value as defined within IFRS 13.

2014 2013

NoteBook value

£mFair value

£m Book value

£mFair value

£m

Long-term borrowings 12.4 (415.8) (418.0) (440.6) (435.2)

Fair value of other financial assets and financial liabilities

Financial instruments held or issued to finance the Group’s operations:

Short-term borrowings 12.4 (125.4) (125.4) (21.0) (21.0)

Trade and other payables excluding other tax and social security 8.3 (244.4) (244.4) (223.8) (223.8)

Trade and other receivables excluding prepayments and accrued income 8.2 306.3 306.3 297.4 297.4

Short-term bank deposits 12.3 0.4 0.4 1.2 1.2

Cash at bank and in hand 12.3 144.2 144.2 99.6 99.6

Other financial liabilities 13.4 (60.1) (60.1) (84.2) (84.2)

13.2 Maturity of financial liabilities

The maturity profile of the undiscounted contractual amount of the Group’s financial liabilities at 30 September was as follows:

2014

Borrowings £m

Trade and other payables

£m

Other financial liabilities

£mTotal

£m

In less than one year 125.4 297.3 60.1 482.8

In more than one year but not more than two years 30.8 – – 30.8

In more than two years but not more than five years 172.4 – – 172.4

In more than five years 216.1 – – 216.1

544.7 297.3 60.1 902.1

2013

Borrowings £m

Trade and other payables

£m

Other financial liabilities

£mTotal £m

In less than one year 21.0 287.6 30.0 338.6

In more than one year but not more than two years 133.8 – – 133.8

In more than two years but not more than five years 92.6 – 54.2 146.8

In more than five years 216.2 – – 216.2

463.6 287.6 84.2 835.4



13 Financial instruments continued

13.3 Borrowing facilities

The Group has the following undrawn committed borrowing facilities available at 30 September in respect of which all conditions precedent had been

met at that date:

2014

£m 2013

£m

Expiring in more than two years but not more than five years 399.3 336.6

The facilities have been arranged to help finance the expansion of the Group’s activities. All these facilities incur commitment fees at market rates. In

addition, the Group maintains overdraft and uncommitted facilities to provide short-term flexibility and has also utilised the US private placement market.

13.4 Other financial liabilities

Accounting policy

The Group makes use of contingent contracts for the purchase of its own shares. These derivative contracts are accounted for as equity transactions

and the contracts are not stated at their market values. The present value of the obligation to purchase the shares is recognised in full at the inception

of the contract, even when that obligation is conditional. Any subsequent reduction in the total obligation arising from the early termination of a

contract is credited back to equity at the time of termination.

Where put and call agreements are in place in respect of shares held by a non-controlling interest, the put element is accounted for as a financial

liability. The amount that may become payable under the option on exercise is initially recognised at present value with a corresponding charge

directly to equity. At the end of each period, the valuation of the liability is reassessed with any changes recognised in the income statement.

2014

£m2013

£m

Current liabilities : Close period share buyback programme (60.1) (30.0)

Non-current liabilities: Put and call arrangement to acquire non-controlling interest – (54.2)

Total other financial liabilities (60.1) (84.2)

The fair value of the close period share buyback programme has been calculated based on the value of the contractual legal agreement with Citigroup

Global Markets Limited, which is also equal to the book value.

The put and call arrangement to acquire the remaining non-controlling interest’s 25% share in Folhamatic in Brazil was settled during 2014 for

consideration of £50.4m, increasing the Group’s ownership of the Brazilian sub-Group to 100%. In the prior year, the liability was estimated at

£55.4m, which was £54.2m after discounting to the present value of the estimated redemption amount. The redemption amount was calculated

based on a multiple of expected EBITDA for the year ending 31 December 2014. Movements on charging the discount of £0.8m (2012: £1.2m)

have been recognised within finance costs.

2014

£m2013 £m

Opening fair value at 1 October 54.2 68.3

Consideration paid (50.4) –

Imputed interest recognised in the Consolidated income statement within finance costs 0.8 1.2

Loss/(gain) on fair value adjustments 0.4 (13.5)


Closing fair value at 30 September – 54.2

13.5 Sensitivity analysis

Financial instruments affected by market risks include borrowings and deposits.

The following analysis, required by IFRS 7, “Financial Instruments: Disclosures”, is intended to illustrate the sensitivity to changes in market variables,

being sterling, US Dollar and Euro interest rates, and sterling/US Dollar and sterling/Euro exchange rates.

The sensitivity analysis assumes reasonable movements in foreign exchange and interest rates before the effect of tax. The Group considers

a reasonable interest rate movement in LIBOR to be 1%, based on interest rate history. Similarly, sensitivity to movements in sterling/US Dollar and

sterling/Euro exchange rates of 10% are shown, reflecting changes of reasonable proportion in the context of movement in those currency pairs

over the last year.

Using the above assumptions, the following table shows the illustrative effect on the consolidated income statement and equity.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

2014 2013

Income (losses)/gains

£m

Equity (losses)/gains

£m

Income (losses)/gains

£m

Equity (losses)/gains

£m

1% increase in market interest rates (2.5) (2.5) (3.6) (3.6)

1% decrease in market interest rates 2.5 2.5 3.6 3.6

10% strengthening of sterling versus the US Dollar (3.9) (17.4) 11.7 (9.3)

10% strengthening of sterling versus the Euro (5.9) (28.0) (3.1) (23.8)

10% weakening of sterling versus the US Dollar 4.3 19.2 (12.9) 10.2

10% weakening of sterling versus the Euro 6.5 30.8 3.4 26.1

13.6 The minimum lease payments under finance leases fall due as follows:

2014

£m2013

£m

In less than one year 1.1 1.1

In more than one year but not more than five years 0.4 0.7

1.5 1.8

Future finance charges on finance leases – (0.1)

Present value of finance lease liabilities 1.5 1.7

13.7 Hedge accounting

Accounting policy

The Group operates net investment hedges, using foreign currency borrowings. The portion of the gain or loss on an instrument used to hedge a net

investment in a foreign operation is determined to be an effective hedge and is recognised in other comprehensive income. The ineffective portion is

recognised immediately in profit or loss. On disposal of the net investment, the foreign exchange gains and losses on the hedging instrument are

recycled to the income statement from equity.

14 Equity

This note analyses the movements recorded through shareholders’ equity that are not explained elsewhere in the financial statements, being changes

in the amount which shareholders have invested in the Group.

The Group utilises share award schemes as part of its employee remuneration package. Share option schemes for our employees include The Sage

Group Performance Share Plan for directors and senior executives and The Sage Group Savings-related Share Option Plan (the “SAYE Plan”) for all

qualifying employees. We incur a cost in respect of these schemes in our income statement, which is set out below along with a detailed description

of each scheme and the number of options outstanding.

This note also shows the dividends paid in the year and any dividends that are to be proposed and paid post year-end. Dividends are paid as an

amount per ordinary share held.

Accounting policy

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a

deduction, net of tax, from the proceeds.

Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable

incremental costs (net of income taxes), is deducted from equity attributable to the owners of the Company until the shares are cancelled or reissued.



14 Equity continued

14.1 Ordinary shares

Issued and fully paid 2014

shares2014 £m

2013 shares

2013 £m

At 1 October 1,114,135,420 11.7 1,329,517,570 13.3

Proceeds from shares issued 1,756,627 – 3,792,153 –

Shares cancelled – – (159,525,800) (1.6)

Share consolidation – – (59,648,503) –

At 30 September 1,115,892,047 11.7 1,114,135,420 11.7

There was a share consolidation on 10 June 2013 following approval by shareholders. The share consolidation replaced every 81 existing ordinary

shares of 1 pence each with 77 new ordinary shares of 14/77 pence each.

Potential issues of ordinary shares

Executive Share Option Scheme

Certain senior executives hold a total of 2,338,990 (2013: 3,492,263) options to subscribe for shares in the Company at prices ranging from 171.0p

to 270.0p under the share option schemes approved by shareholders.

Under the above scheme, 1,247,775 14/77 p ordinary shares were issued during the year for aggregate proceeds of £2.7m.

Performance Share Plan

Under the Group’s Performance Share Plan 5,519,987 (2013: 6,265,091) awards were made during the year.

Restricted Share Plan

The Group’s Restricted Share Plan is a long-term incentive plan used in limited circumstances and usually on a one-off basis. During the year 1,151,427

(2013: nil) awards were made.

Savings-related Share Option Scheme

In addition, 1,532,520 (2013: 757,980) options were granted under the terms of the Savings-related Share Option Scheme.

Under the above scheme, 508,852 14/77 p ordinary shares were issued during the year for aggregate proceeds of £1m.

14.2 Share-based payments

Accounting policy

Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period,

based on the Group’s estimate of the shares that will eventually vest allowing for the effect of non-market-based vesting conditions.

Fair value is measured using the Black-Scholes or the Monte Carlo pricing models. The expected life used in the model has been adjusted, based on

management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

At the end of the reporting period, the entity revises its estimates for the number of options expected to vest. It recognises the impact of the revision

to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The total charge for the year relating to employee share-based payment plan was £8.0m (2013: £2.9m), all of which related to equity-settled share-

based payment transactions. After deferred tax, the total charge was £7.8m (2013: £3.0m). A reconciliation of share movements for options granted

after 7 November 2002 to which IFRS 2, “Share-based Payment”, is applicable is shown on the following pages.

Executive Share Option Scheme

There have been no grants of executive share options under the 1999 Executive Share Option Scheme (“ESOS”) since June 2008. Long-term incentive

awards are made under The Sage Group plc Performance Share Plan.

The performance targets governing the vesting of options are based on stretching EPS growth measured over a fixed three-year period from the start

of the financial year in which the grant is made. 30% of options will vest at the end of the period if the increase in EPS exceeds the Retail Prices Index

(“RPI”) by 15% (an average of 5% per year) and 100% of those options will vest at that time only if the RPI is exceeded in that period by 27% (an average

of 9% per year). Between those targets, options will vest on a straight-line basis. If those targets are not met at the end of the three-year period, then no

further retesting of the performance criteria will be undertaken and the options will lapse.

Options were valued using the Black-Scholes option-pricing model. The expected volatility is based on historical volatility over the last four years.

The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon UK government bonds

of a term consistent with the assumed option life.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

A reconciliation of option movements over the year is shown below:

2014 2013

Number ’000s

Weighted average exercise

price £

Number ’000s


price £

Outstanding at 1 October 3,492 2.33 6,818 2.21

Forfeited (63) 2.29 (132) 2.08

Exercised (1,090) 2.20 (3,194) 2.08

Outstanding at 30 September 2,339 2.41 3,492 2.33

Exercisable at 30 September 2,339 2.41 3,492 2.33

2014 2013


price £

Numberof shares

’000s

Weighted average

remaining life years


price £

Number of shares

’000s

Weighted average


Range of exercise prices £ Expected Contractual Expected Contractual

1.71 – 2.70 2.41 2,339 – 1.4 2.33 3,492 – 2.1

The weighted average share price during the period for options exercised over the year was 387.8p (2013: 344.6p).

The Sage Group Performance Share Plan

Annual grants of performance shares will normally be made to executive directors and senior executives across the Group after the preliminary

declaration of the annual results.

Awards prior to 2013

Annual awards under the Plan are limited to shares worth up to 300% of base salary. In practice, annual grants to executive directors are limited to

shares with a maximum value on award of 210% of base salary except in exceptional circumstances, such as a promotion or recruitment or to reflect

local market practice.

The performance shares are subject to performance conditions on a sliding scale based on EPS. 25% of the award will vest at the end of the

period if the increase in EPS exceeds RPI by 9% (an average of 3% per year); 100% of the award will vest at that time only if RPI is exceeded in that

period by 27% (an average of 9% per year). Between those targets, awards will vest on a straight-line basis, and if those targets are not met there is

no opportunity for re-testing. Awards are then subject to a total shareholder return (TSR) “multiplier” whereby the level of vesting based on EPS

achievement will be adjusted according to TSR performance over the same three-year period compared with a group of international software and

computer services companies.

The comparator group for awards made in 2012 comprised the following companies:

− Adobe Systems − Cegid − Logica − Salesforce.com

− ARM Holdings − Dassault Systèmes − Micro Focus International − SAP

− Blackbaud − Exact − Microsoft − Software AG

− Cap Gemini − Intuit − Oracle

If Sage’s TSR is ranked at lower quartile in the group, the multiplier is 0.75. If Sage’s TSR is ranked at median in the group, the multiplier is 1. If Sage’s

TSR is ranked at upper quartile in the group, then the multiplier is 1.5. Straight-line pro-rating applies between 0.75 and 1, and between 1 and 1.5, but

the multiplier cannot be higher or lower than these figures.

Awards from 2013 onwards

The performance shares are subject to both performance conditions and a TSR target. Performance conditions are weighted one third on the

achievement of an EPS target, and one third on the achievement of an organic revenue growth target. The remaining one third is based on a TSR target.

The EPS vesting percentage is based on compound EPS growth. Where compound EPS growth is between 6% and 12%, the EPS vesting percentage

will be calculated on a straight-line pro-rata basis between 6.7% and 26.7%, and where compound EPS growth is between 12% and 15%, the EPS

vesting percentage will be calculated on a straight-line pro-rata basis between 26.7% and 33.3%.



14 Equity continued

14.2 Share-based payments continued

The organic revenue growth target is based on the Company’s compound annual organic revenue growth. Where growth is between 4% and 8% the

organic revenue growth vesting percentage will be calculated on a straight-line pro-rata basis between 6.7% and 26.7%, and where the Company’s

compound organic revenue growth is between 8% and 10%, the organic revenue growth vesting percentage will be calculated on a straight-line

pro-rata basis between 26.7% and 33.3%. In order for the organic revenue growth target proportion to vest, the EBITA margin in the financial year

ending 30 September 2016 must not be less than that of the EBITA margin for the financial year ending 30 September 2013.

The final third of the award is the performance target relating to TSR which measures share price performance against a designated comparator group.

Where the Company’s TSR is between median and upper quartile, the TSR vesting percentage will be calculated on a straight-line pro-rata basis

between 6.7% and 26.7% and where the Company’s TSR is between upper quartile and upper decile, the TSR vesting percentage will be calculated

on a straight-line pro-rata basis between 26.7% and 33.3%. The TSR vesting percentage may only exceed 26.7% (“Stretch” level) if performance

against either the EPS target or the organic revenue growth target is also at “Stretch” level.

The comparator group for awards in 2014 is the companies comprised in the FTSE 100 Index at the start of the performance period, excluding financial

services and extraction companies.

Awards were valued using the Monte Carlo option-pricing model. Performance conditions were included in the fair value calculations. The fair value per

award granted and the assumptions used in the calculation are as follows:

Grant date January

2014March

2014March

2014August

2014August

2014 September

2014September

2014

Share price at grant date £4.12 £4.20 £4.20 £3.67 £3.67 £3.70 £3.70

Exercise price £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00

Number of employees 1 118 145 2 1 1 1

Shares under award 116,873 4,654,084 690,670 30,600 6,352 15,570 5,838

Vesting period (years) 3 3 3 3 3 3 3

Expected volatility 22% 22% 22% 21% 21% 20% 20%

Award life (years) 3 3 3 3 3 3 3

Expected life (years) 3 3 3 3 3 3 3

Risk free rate 1.10% 1.10% 1.10% 1.19% 1.19% 0.92% 0.92%

Expected dividends expressed as a

dividend yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Fair value per award £3.491 £3.623 £4.194 £2.970 £3.670 £2.993 £3.698

Grant date March 2013

March 2013

June 2013

August 2013

August 2013

Share price at grant date £3.46 £3.46 £3.34 £3.52 £3.52

Exercise price £0.00 £0.00 £0.00 £0.00 £0.00

Number of employees 101 147 1 1 1

Shares under award 5,248,868 801,480 186,400 23,619 4,724

Vesting period (years) 3 3 3 3 3

Expected volatility 23% 23% 23% 22% 22%

Award life (years) 3 3 3 3 3

Expected life (years) 3 3 3 3 3

Risk free rate 0.26% 0.26% 0.59% 0.66% 0.66%

Expected dividends expressed as a dividend yield 0.00% 0.00% 0.00% 0.00% 0.00%

Fair value per award £2.753 £3.460 £2.637 £2.737 £3.520


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise.

The risk free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed award life.

A reconciliation of award movements over the year is shown below:

2014 2013

Number ’000s


price £

Number ’000s


price £

Outstanding at 1 October 16,739 – 19,128 –

Awarded 5,520 – 6,265 –

Forfeited (8,347) – (8,654) –

Exercised (21) – – –

Outstanding at 30 September 13,891 16,739 –

Exercisable at 30 September – – – –

2014 2013


price £

Number of shares

’000s

Weighted average remaining life years


price £

Number of shares

’000s

Weighted average remaining life years

Range of exercise prices Expected Contractual Expected Contractual

N/A – 13,891 1.6 1.6 – 16,739 1.4 1.4

The Sage Group Restricted Share Plan

The Group’s Restricted Share Plan is a long-term incentive plan used in limited circumstances and usually on a one-off basis, under which contingent

share awards are made, usually with specific performance conditions. Executive directors are not permitted to participate in the plan and shares are

purchased in the market to satisfy vesting awards.

Grant date December

2013January

2014

Share price at grant date £3.72 £4.12

Exercise price £0.00 £0.00

Number of employees 7 13

Shares under award 800,881 350,546

Vesting period (years) 2 3

Expected volatility 20% 22%

Award life (years) 2 3

Expected life (years) 2 3

Risk free rate 0.60% 1.10%

Expected dividends expressed as a dividend yield – –

Fair value per award £3.721 £4.107

Options were valued using the Black-Scholes option-pricing model. The expected volatility is based on historical volatility over the last two or three years,

consistent with the award life. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon UK

government bonds of a term consistent with the assumed award life.



14 Equity continued

14.2 Share-based payments continued

A reconciliation of award movements over the year is shown below:

2014 2013

Number ’000s


price £

Number ’000s


price £

Outstanding at 1 October 720 – 720 –

Awarded 1,151 – – –

Forfeited (420) – – –

Outstanding at 30 September 1,451 – 720 –

Exercisable at 30 September – – – –

2014 2013


price £

Number of shares

’000s

Weighted average



price £

Number of shares

’000s

Weighted average


Range of exercise prices Expected Contractual Expected Contractual

N/A – 1,451 1.9 1.9 – 720 0.4 0.4

The Sage Group Savings-related Share Option Plan (the “SAYE Plan”)

The Group operates an approved savings-related share option scheme for UK employees. The fair value is expensed over the service period of three,

five or seven years on the assumption that 20% of options will lapse over the service period as employees leave the Group.

14.3 Other reserves

Translation reserve

£m

Merger reserve

£m

Other reserve

£m

Total other

reserves £m

At 1 October 2012 83.4 61.1 (68.0) 76.5

Exchange differences on translating foreign operations 28.4 – – 28.4

Exchange differences recycled to the income statement in respect of the disposal of foreign operations (44.5) – – (44.5)

At 30 September 2013 67.3 61.1 (68.0) 60.4

Exchange differences on translating foreign operations (39.6) – – (39.6)

Purchase of non-controlling interest – – 68.0 68.0

At 30 September 2014 27.7 61.1 – 88.8

Translation reserve

The translation reserve represents the accumulated exchange differences arising since the transition to IFRS from the following sources:

– The impact of the translation of subsidiaries with a functional currency other than sterling; and

– Exchange differences arising on hedging instruments that are designated hedges of a net investment in foreign operations, net of tax

where applicable.

Exchange differences arising prior to the IFRS transition were offset against retained earnings.

Merger reserve

Merger reserve brought forward relates to the merger reserve which was present under UK GAAP and frozen on transition to IFRS.

Other reserve

Other reserve relates to the recognition of a put and call arrangement to acquire the remaining non-controlling interest’s 25% share in Folhamatic.

This was acquired in 2014. See note 13.4.

14.4 Retained earnings

The actuarial loss of £0.4m (2013: gain of £1.1m) is made up of a loss of £0.6m (2013: gain of £0.7m) on post-employment benefits (note 9)

and a gain of £0.2m (2013: gain of £0.4m) on other long-term employee benefits (note 9).


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Treasury shares

Purchase of treasury shares

Shares purchased under the Group’s buyback programme are not cancelled but are retained in issue and represent a deduction from equity attributable

to owners of the parent. During the year the Group purchased 24,206,805 shares (2013: 77,254,057) at a cost of £89.5m (2013: £251.0m) representing

2% of issued share capital. Shares were repurchased at a weighted average price of 369.8p per share; the highest and lowest prices paid for these

shares were 399.0p per share and 312.3p per share respectively.

Close period share buyback programme

The close period buyback programme for £60.1m (2013: £30.0m) relates to the purchase of the Company’s own shares. Citigroup Global Markets

Limited has been appointed to manage the irrevocable buyback programme during the close period which commenced on 1 October 2014 and will run

up until 3 December 2014.

Employee Share Trust

The Group holds treasury shares in a trust which was set up for the benefit of Group employees. The Trust purchases the Company’s shares in the

market or is gifted them by the Company for use in connection with the Group’s share-based payments arrangements. The Trust holds 5,407,155

ordinary shares in the Company (2013: 5,428,407) at a cost of £0.9m (2013: £0.9m) and a nominal value of £56,880 (2013: £54,284).

The Trust originally purchased the shares in 2006, and further shares were acquired by the Trust in 2010 with the cost being reflected in retained

earnings. These shares were acquired by the Trust in the open market using funds provided by the Company. In January 2013 the Company gifted

5,000,000 shares from purchased treasury shares to the Trust.

The costs of funding and administering the scheme are charged to the profit and loss account of the Company in the period to which they relate. The

market value of the shares at 30 September 2014 was £19.8m (2013: £17.9m).

14.5 Dividends

Accounting policy

Dividends are recognised through equity when approved by the Company’s shareholders or on payment, whichever is earlier.

2014 £m

2013 £m

Final dividend paid for the year ended 30 September 2013 of 7.44p per share 81.2 –

(2013: final dividend paid for the year ended 30 September 2012 of 6.67p per share) 79.3

Interim dividend paid for the year ended 30 September 2014 of 4.12p per share 45.0 –

(2013: interim dividend paid for the year ended 30 September 2013 of 3.69p per share) 42.8

Special dividend paid of 17.1p per share – 198.7

126.2 320.8

In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2014 of 8.00p per share which will absorb

an estimated £86.1m of shareholders’ funds. It will be paid on 6 March 2015 to shareholders who are on the register of members on 13 February 2015.

These financial statements do not reflect this dividend payable.

14.6 Non-controlling interest

Non-controlling interests in equity in the Group balance sheet represent the share of net assets of subsidiary undertakings held outside the Group.

The movement in the year comprises the profit attributable to such interests together with movements in respect of corporate transactions and related

exchange differences.

2014

£m2013

£m

At 1 October (1.0) (2.1)

Non-controlling interest’s share of profit of the year 0.9 1.1

Purchase of non-controlling interest 0.1 –

At 30 September – (1.0)


Ove

rvie

w

Stra

teg

ic re

po

rtG

overn

ance

Fin

ancia

l sta

tem

ents

Other notes

15 Acquisitions and disposals

The following note outlines acquisitions and disposals during the year and the accompanying accounting policies. Each acquisition or disposal during

the year is discussed in detail and the effects on the results of the Group are highlighted.

Accounting policy

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair

values at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control

of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (Revised),

“Business Combinations” are recognised at their fair values at the acquisition date.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value

of the contingent consideration that is deemed to be an asset or liability is recognised in the income statement. Contingent consideration that is

classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Goodwill represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date

fair value of any previous equity interest in the acquiree over the fair value of the Group’s total identifiable net assets acquired. If, after reassessment,

the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business

combination, the difference is recognised directly in the Consolidated income statement. Any subsequent adjustment to reflect changes in

consideration arising from contingent consideration amendments is recognised in the Consolidated income statement.

On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling

interest’s proportionate share of the acquiree’s net assets.

Acquisition-related items such as legal or professional fees are expensed to the income statement as incurred.

The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. The difference between fair value of

any consideration paid and the relevant shares acquired of the carrying value of net assets of the subsidiary is recorded in equity.

Where the Group enters into put and call arrangements over shares held by a non-controlling interest, the Group continues to recognise the

non-controlling interest until the ownership risks and rewards of those shares transfer to the Group.

15.1 Acquisitions made during the year

Acquisition of Exact

On 15 September 2014 the Group acquired 100% of the share capital of Exact Software Deutschland GmbH (“Exact”), a provider of payroll services and

software, for a cash consideration of £12.8m. As a result of the acquisition the Group expects to become one of the leading providers of payroll software

solutions in Germany.

Other

On 14 August 2014 the Group acquired 100% of the share capital of Sytax Systemas S.A in Brazil for consideration of £0.6m.

Details of net assets acquired and goodwill are as follows:

Summary of acquisitions £m

Purchase consideration

Cash 13.4

Deferred/contingent consideration –

Total purchase consideration 13.4

Fair value of net identifiable assets (5.8)

Goodwill 7.6


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

Fair value of acquisitions Exact

£m Other

£mTotal

£m

Intangible assets 6.6 – 6.6

Property, plant and equipment 0.2 – 0.2

Trade and other receivables 0.5 – 0.5

Cash and cash equivalents 2.7 – 2.7

Trade and other payables (1.5) – (1.5)

Deferred revenue (2.7) – (2.7)

Total net identifiable assets acquired 5.8 – 5.8

Goodwill 7.0 0.6 7.6

Consideration satisfied by:

Cash 12.8 0.6 13.4

Deferred/contingent consideration – – –

Total purchase consideration 12.8 0.6 13.4

The outflow of cash and cash equivalents on the acquisitions is calculated as follows:

Cash consideration 12.8 0.6 13.4

Cash and cash equivalents acquired (2.7) – (2.7)

Deferred consideration, paid on prior period acquisitions – 3.4 3.4

Net cash outflow in respect of acquisitions 10.1 4.0 14.1

In addition, the remaining non-controlling interest 25% share in Folhamatic in Brazil was settled during 2014. See note 13.4 for more details.

15.2 Contribution of acquisitions

From the dates of the acquisitions to 30 September 2014, the acquisitions contributed £0.4m to revenue and £0.0m to profit before income tax.

Had these acquisitions occurred at the beginning of the financial year, contribution to Group revenue would have been £9.6m and Group profit before

income tax would have increased by £0.4m.

15.3 Costs relating to business combinations in the year

Costs relating to business combinations in the year of £2.4m (2013: £0.1m) have been included in selling and administrative expenses in the

Consolidated income statement. These acquisition-related items (previously recognised in goodwill prior to IFRS 3 (Revised), “Business Combinations”)

relate to completed transactions and include advisory, legal, accounting, valuation and other professional or consulting services.

15.4 Disposals made during the year

On 11 March 2014, Sage Software India Pvt Ltd (“Sage India”) sold trading assets with a value of less than £0.1m to Greytrix Consulting Private Limited

(“Greytrix”) for consideration of less than £0.1m. As part of this transaction Greytrix became the distributor of Sage products in India. No further

disclosures are presented within these financial statements.

15.5 Acquisitions made after the year-end but before sign off of Annual Report

Acquisition of PayChoice.

On 16 October 2014 the Group acquired PAI Group, Inc. (“PayChoice”), a provider of payroll and HR services to small and medium sized businesses

in North America, for a cash consideration of £75.2m. The acquisition strengthens Sage’s position in the large and growing US payroll market.

The net identifiable assets were recognised at their provisional fair values. The allocation of the consideration is subject to a full purchase price

allocation exercise, which due to the timing of the acquisition has not yet been completed. The residual excess over the net assets acquired has been

provisionally recognised as goodwill. Paychoice’s product portfolio provides easy to use online payroll solutions to small and medium sized businesses,

and strengthens the Sage value proposition to customers with a more robust and comprehensive offering. The combined portfolio provides attractive

growth opportunities, particularly through new customer acqusitions and cross-sell to the combined customer base.


Other notes continued

15 Acquisitions and disposals continued

15.5 Acquisitions made after the year-end but before sign off of Annual Report continued

Details of net assets acquired and goodwill are as follows:

Summary of acquisitions £m

Purchase consideration

Cash 75.2



Fair value of net identifiable liabilities 22.5

Goodwill 97.7

Provisional fair value of acquisitions £m

Property, plant and equipment 1.0

Other non-current assets 0.7

Trade and other receivables 1.6

Cash and cash equivalents 0.9

Trade and other payables (3.9)

Current borrowings (2.6)

Non-current borrowings (19.6)

Provisions (0.6)

Total net identifiable liabilities acquired (22.5)

Goodwill 97.7

Consideration satisfied by:

Cash 75.2



The outflow of cash and cash equivalents on the acquisitions is calculated as follows:

Cash consideration 75.2

Cash and cash equivalents acquired (0.9)

Borrowings acquired 22.2

Deferred consideration, paid on prior period acquisitions –

Net cash outflow in respect of acquisitions 96.5


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

16 Related party transactions

This note discloses any transaction by the Group with related parties, which are classified as companies or individuals who have an interest in the

Group, including joint ventures, associated undertakings, investments and key management personnel.

The Group’s related parties are its subsidiary undertakings and Executive Committee members. The Group has taken advantage of the exemption

available under IAS 24, “Related Party Disclosures”, not to disclose details of transactions with its subsidiary undertakings. Compensation paid to the

Executive Committee is disclosed in note 3.3.

Supplier transactions occurred during the year between Sage South Africa (Pty) Ltd, one of the Group’s subsidiary companies, and Ivan Epstein,

Chief Executive Officer, AAMEA. These transactions relate to the lease of four properties in which Ivan Epstein has a minority and indirect shareholding.

During the year £3.2m (2013: £1.1m) relating to these transactions was charged through selling and administrative expenses. There were no outstanding

amounts payable for the year ended 2014 (2013: £nil).

Supplier transactions occurred during the year between Sage SP, S.L., one of the Group’s subsidiary companies, and Álvaro Ramírez, Chief Executive

Officer, Europe. These transactions relate to the lease of a property in which Álvaro Ramírez has a minority shareholding. During the year £1.1m (2013:

£0.2m) relating to these transactions was charged through selling and administrative expenses. There were no outstanding amounts payable for the

year ended 2014 (2013: £nil).

These arrangements are subject to independent review using external advisers to ensure all transactions are at arm’s length.

17 Events after the reporting period

Where the Group receives information in the period between 30 September 2014 and the date of the issue of this report about conditions related to

certain events that existed at the year-end, our disclosures are updated in light of the new information.

17.1 Share buyback

On 30 September 2014 the Group appointed Citigroup Global Markets Limited to manage an irrevocable buyback programme during the close period

which commenced on 1 October 2014 and will run up to 3 December 2014. From 1 October 2014 to 27 November 2014, the latest practical date prior

to publication of the Annual Report & Accounts, 3,457,020 ordinary shares of 14/77p each were repurchased through Citigroup Global Markets Limited at

a weighted average price of 363.8p per share. The highest and lowest prices paid for these shares were 390.7p per share and 347.0p per share

respectively. The purchased shares have not been cancelled and are held as treasury shares. The total number of ordinary shares in issue (excluding

shares held as treasury shares) at 27 November 2014 is 1,076,443,965.

17.2 Acquisitions made after the year but before sign off of annual report

See note 15.5.

17.3 Appointment of CEO

Guy Berruyer retired as CEO and Stephen Kelly was appointed as CEO on 5 November 2014.

18 Principal subsidiaries

While we present consolidated results in these financial statements, our structure is such that there are a number of different operating and holding

companies that contribute significantly to the overall result.

Our subsidiaries are located around the world and each contributes to the profits, assets and cash flow of the Group. We have a large number of

subsidiaries and so for practical reasons in this section only the principal subsidiaries are listed in full.

Detailed below is a list of those subsidiaries which in the opinion of the directors principally affect the amount of the profit or the amount of the assets of

the Group. The Group percentage of equity capital and voting rights is 100% for all of these. All of these subsidiaries are engaged in the development,

distribution and support of business management software and related products and services for small and medium sized businesses.


Other notes continued

Incorporated subsidiaries

Name Country of incorporation Direct or indirect holding

Sage (UK) Ltd UK Indirect

Sage Pay Europe Limited UK Indirect

Sage Hibernia Limited Ireland Indirect

Sage Pay Ireland Limited Ireland Indirect

Sage SAS France Indirect

Sage Holding France SAS France Indirect

Sage Management and Services GmbH Germany Indirect

Sage Bäurer GmbH Germany Indirect

Sage Schweiz AG Switzerland Indirect

Sage SP, S.L. Spain Indirect

Sage Logic Control, S.L. Spain Indirect

Sage sp. z.o.o. Poland Indirect

Sage Portugal – Software S.A. Portugal Indirect

Sage Software, Inc. US Indirect

Sage Payment Solutions, Inc. US Indirect

IOB Informações Objetivas Publicações Jurídicas Ltda. Brazil Indirect

Sage Brasil Software S.A. Brazil Indirect

Sage Software Canada Ltd Canada Indirect

Sage South Africa (Pty) Ltd South Africa Direct

Micropay Pty Ltd Australia Indirect

Handisoft Software Pty Ltd Australia Indirect

Sage Business Solutions Pty Ltd Australia Indirect

Sage Software Asia Pte Ltd Singapore Indirect

Sage Software Sdn Bhd Malaysia Indirect


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

ove

rnance

nanc

a s

aem

en

s

Contents Company financial statements

Independent auditors’ report to the members of The Sage Group plc 156

Company financial statements

Our Company financial statements provide a complete

picture of our 2014 position.

Company balance sheet 158

Company accounting policies 159

Notes to the Company financial statements Results for the year

Supplementary notes to the Company financial statements. 1. Dividends 160


2. Fixed assets: investments 161

3. Cash at bank and in hand 161

4. Debtors 161

5. Creditors: amounts falling due within one year 162

6. Operating lease commitments 162

7. Capital commitments and contingent liabilities 162

8. Creditors: amounts falling due in more than one year 162


9. Equity 163

Other notes

10. Related party transactions 164

11. Post-balance sheet events 164


Independent auditors’ report to the members of The Sage Group plc

Report on the parent company financial statements

Our opinion

In our opinion, The Sage Group plc’s parent company financial statements

(the “financial statements”):

– give a true and fair view of the state of the parent company’s affairs as

at 30 September 2014;

– have been properly prepared in accordance with United Kingdom

Generally Accepted Accounting Practice; and

– have been prepared in accordance with the requirements of the

Companies Act 2006.

What we have audited

The Sage Group plc’s financial statements comprise:

– the company balance sheet as at 30 September 2014; and

– the notes to the financial statements, which include a summary of

significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in the

preparation of the financial statements is applicable law and United

Kingdom Accounting Standards (United Kingdom Generally Accepted

Accounting Practice).

Other required reporting

Consistency of other information

Companies Act 2006 opinion

In our opinion, the information given in the Strategic Report and the

Directors’ Report for the financial year for which the financial statements

are prepared is consistent with the financial statements.

ISAs (UK & Ireland) reporting

Under International Standards on Auditing (UK and Ireland)

(“ISAs (UK & Ireland)”) we are required to report to you if, in our opinion,

information in the Annual Report is:

– materially inconsistent with the information in the audited financial

statements; or

– apparently materially incorrect based on, or materially inconsistent

with, our knowledge of the company acquired in the course of

performing our audit; or

– is otherwise misleading.

We have no exceptions to report arising from this responsibility.

Adequacy of accounting records and information and

explanations received

Under the Companies Act 2006 we are required to report to you if,

in our opinion:

– we have not received all the information and explanations we require

for our audit; or

– adequate accounting records have not been kept by the parent

company, or returns adequate for our audit have not been received

from branches not visited by us; or

– the financial statements and the part of the Directors’ Remuneration

Report to be audited are not in agreement with the accounting

records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remuneration

Directors’ remuneration report – Companies Act 2006 opinion

In our opinion, the part of the Directors’ Remuneration Report to

be audited has been properly prepared in accordance with the

Companies Act 2006.

Other Companies Act 2006 reporting

Under the Companies Act 2006 we are required to report to you if, in our

opinion, certain disclosures of directors’ remuneration specified by law are

not made. We have no exceptions to report arising from this responsibility.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Statement of directors’ responsibilities

set out on page 96, the directors are responsible for the preparation of the

financial statements and for being satisfied that they give a true and

fair view.

Our responsibility is to audit and express an opinion on the financial

statements in accordance with applicable law and ISAs (UK & Ireland).

Those standards require us to comply with the Auditing Practices

Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the

company’s members as a body in accordance with Chapter 3 of Part 16

of the Companies Act 2006 and for no other purpose. We do not, in giving

these opinions, accept or assume responsibility for any other purpose or

to any other person to whom this report is shown or into whose hands it

may come save where expressly agreed by our prior consent in writing.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

rae

c re

or

o

vern

ance

nanc

a s

aem

en

s

What an audit of financial statements involves

We conducted our audit in accordance with ISAs (UK & Ireland). An

audit involves obtaining evidence about the amounts and disclosures in

the financial statements sufficient to give reasonable assurance that the

financial statements are free from material misstatement, whether caused

by fraud or error. This includes an assessment of:

– whether the accounting policies are appropriate to the parent

company’s circumstances and have been consistently applied and

adequately disclosed;

– the reasonableness of significant accounting estimates made by the

directors; and

– the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the directors’

judgements against available evidence, forming our own judgements,

and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing

techniques, to the extent we consider necessary to provide a reasonable

basis for us to draw conclusions. We obtain audit evidence through testing

the effectiveness of controls, substantive procedures or a combination

of both.

In addition, we read all the financial and non-financial information in the

Annual Report and Accounts (the “Annual Report”) to identify material

inconsistencies with the audited financial statements and to identify any

information that is apparently materially incorrect based on, or materially

inconsistent with, the knowledge acquired by us in the course of

performing the audit. If we become aware of any apparent material

misstatements or inconsistencies we consider the implications for

our report.

Other matter

We have reported separately on the group financial statements

of The Sage Group plc for the year ended 30 September 2014.

Charles Bowman (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Newcastle upon Tyne

3 December 2014

(a) The maintenance and integrity of The Sage Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


Company balance sheet At 30 September 2014 Prepared using UK Generally Accepted Accounting Practice (“UK GAAP”)

Note 2014 £m

2013 £m

Fixed assets: investments 2 3,088.2 3,082.6

Current assets

Cash at bank and in hand 3 0.9 4.5

Debtors 4 506.2 43.0

507.1 47.5

Creditors: amounts falling due within one year

Trade and other payables 5 (654.3) (354.4)

Net current liabilities (147.2) (306.9)

Total assets less current liabilities 2,941.0 2,775.7

Creditors: amounts falling due after more than one year 8 (61.6) (194.0)

Net assets 2,879.4 2,581.7

Capital and reserves

Called up share capital 9.1 11.7 11.7

Share premium account 9.2 535.9 532.2

Other reserves 9.2 (87.2) 2.2

Profit and loss account 9.2 2,419.0 2,035.6

Total shareholders’ funds 2,879.4 2,581.7

The financial statements on pages 158 to 164 were approved by the Board of Directors on 3 December 2014 and are signed on their behalf by:

S Hare,



Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

ove

rnance

nanc

a s

aem

en

s

Company accounting policies

Company accounting policies

Basis of accounting

These financial statements are prepared on the going concern basis, under the historical cost convention, and in accordance with the Companies Act

2006 and applicable accounting standards in the United Kingdom. A summary of the more important Company accounting policies, which have been

consistently applied, is set out below.

Foreign currencies

Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange prevailing at the date of the balance

sheet or at the agreed contractual rate. Transactions in foreign currencies are converted into sterling at the rate prevailing at the dates of the transactions.

All differences on exchange are taken to the profit and loss account.

Investments

Fixed asset investments are stated at cost less provision for any diminution in value.

Parent Company profit and loss account

The amount of profit for the financial year before dividends within the accounts of the parent Company is £538.0m (2013: £2,170.7m). There is no

material difference between the profits and losses as reported above and historical cost profits and losses and there are no other gains or losses in

the year.

No profit and loss account or cash flow statement is presented for the Company as permitted by section 408 of the Companies Act 2006.

Auditors’ remuneration

The audit fees payable in relation to the audit of the financial statements of the Company are £27,000 (2013: £26,000).

Share-based payments

The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value

(excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-

based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the shares that will eventually vest

allowing for the effect of non-market-based vesting conditions.

Fair value is measured using the Black-Scholes or the Monte Carlo pricing models. The expected life used in the model has been adjusted based on

management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The Company also provides certain employees with the ability to purchase the Company’s ordinary shares at a discount to the current market value at

the date of the grant. The Company records an expense, based on its estimate of the discount related to shares expected to vest, on a straight-line

basis over the vesting period.

At the end of each reporting period, the entity revises its estimates for the number of options expected to vest. It recognises the impact of the revision

to original estimates, if any, in the profit and loss account, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the

options are exercised.

Financial instruments and hedge accounting

The accounting policy of the Company for financial instruments and hedge accounting is the same as that shown in the Group accounting policies.

This policy is in accordance with FRS 26, “Financial Instruments: Recognition and Measurement”.



1 Dividends

2014

£m2013 £m

Final dividend paid for the year ended 30 September 2013 of 7.44p per share 81.2

(2013: final dividend paid for the year ended 30 September 2012 of 6.67p per share) 79.3

Interim dividend paid for the year ended 30 September 2014 of 4.12p per share 45.0

(2013: interim dividend paid for the year ended 30 September 2013 of 3.69p per share) 42.8

Special dividend paid of 17.1p per share 198.7

126.2 320.8

In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2014 of 8.00p per share which will absorb

an estimated £86.1m of shareholders’ funds. It will be paid on 6 March 2015 to shareholders who are on the register of members on 13 February 2015.

These financial statements do not reflect this dividend payable.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

ove

rnance

nanc

a s

aem

en

s


2 Fixed assets: investments

Equity interests in subsidiary undertakings are as follows:

£m

Cost

At 1 October 2013 3,218.4

Increase in year 5.6

Disposals –

At 30 September 2014 3,224.0

Provision for diminution in value

At 1 October 2013 135.8

Provision in year –

At 30 September 2014 135.8

Net book value

At 30 September 2014 3,088.2

At 30 September 2013 3,082.6

The directors believe that the carrying value of the investments is supported by their underlying net assets.

Principal trading subsidiary undertakings, included in the Group accounts at 30 September 2014, are shown in note 18 of the Group financial

statements. All of these subsidiary undertakings are wholly owned. All subsidiaries are engaged in the development, distribution and support of business

management software and related products and services for small and medium sized businesses.

All operating subsidiaries’ results are included in the consolidated financial statements. The accounting reference date of all subsidiaries is 30 September,

except for Brazilian subsidiaries which have an accounting reference of 31 December due to Brazilian statutory requirements.

3 Cash at bank and in hand

2014 £m

2013 £m

Cash at bank and in hand 0.9 4.5

4 Debtors

2014

£m2013 £m

Amounts owed by Group undertakings 505.9 43.0

Other debtors 0.3 –

506.2 43.0



5 Creditors: amounts falling due within one year

2014 £m

2013 £m

Bank loans and overdrafts 0.9 0.4

Amounts owed to Group undertakings 465.2 317.4

Other creditors 60.1 30.0

Accruals and deferred income 4.7 6.6

US senior bank loans -unsecured 123.4 –

654.3 354.4

Other creditors relate to outstanding liabilities of £60.1m (2013: £30.0m) arising under an irrevocable close period buyback agreement for the purchase

of the Company’s own shares.

6 Operating lease commitments

The Company had no operating lease commitments during the year (2013: £nil).

7 Capital commitments and contingent liabilities

The Company had no capital commitments or contingent liabilities at 30 September 2014 (2013: none).

8 Creditors: amounts falling due in more than one year

2014

£m2013

£m

In more than two years but not more than five years

US senior loan notes – unsecured 61.6 184.4

Bank loans – unsecured – 9.6

61.6 194.0

Included in loans above is £185.0m (2013: £184.4m) of unsecured loans (after unamortised issue costs).

The Company has US$300.0m (£185.1m, 2013: £185.3m) of US senior loan notes, which were issued into the US private placement market

in 2010. These notes mature US$200.0m (£123.4m, 2013: £123.5m) in 2015, US$50.0m (£30.8m, 2013: £30.9m) in 2016 and US$50.0m

(£30.8m, 2013: £30.9m) in 2017 and carry interest coupons of 4.39%, 4.78% and 5.15% respectively.

In 2013 there were £9.6m drawings under the multi-currency revolving credit facility of £346.2m expiring on 31 August 2015. In 2014 the multi-currency

revolving credit facility was refinanced in a subsidiary of the parent company (Sage Treasury Company Limited).

In the table above, bank loans and loan notes are stated net of unamortised issue costs of £0.1m (2013: £0.9m). The Company has in the year

written off remaining issue costs amounting to £0.5m in respect of the refinancing of its revolving credit facility in a subsidiary of the parent company.


Go

vern

an

ce

Fin

an

cia

l sta

tem

en

tsS

trate

gic

rep

ort

verv

ew

ra

ec re

or

ove

rnance

nanc

a s

aem

en

s


9 Equity

9.1 Called up share capital

Issued and fully paid 2014

shares 2014 £m

2013 shares

2013 £m

At 1 October 1,114,135,420 11.7 1,329,517,570 13.3

Proceeds from shares issued 1,756,627 – 3,792,153 –

Share consolidation – – (59,648,503) –

Shares cancelled – – (159,525,800) (1.6)

At 30 September 1,115,892,047 11.7 1,114,135,420 11.7

Share-based payments

The grants and related accounting treatment adopted by the Company under FRS 20, “Share-based Payment”, are identical to those adopted by the

Group under IFRS 2, “Share-based Payment”.

9.2 Reserves

Treasury shares

£m

Merger reserve

£m

Capital redemption

reserve £m

Total other reserves

£m

Share premium account

£m

Profit and loss account

£mTotal

£m

At 1 October 2013 (60.5) 61.1 1.6 2.2 532.2 2,035.6 2,570.0

New shares issued – – – – 3.7 – 3.7

Utilisation of treasury shares 0.1 – – 0.1 – (0.1) –

Purchase of treasury shares (89.5) – – (89.5) – – (89.5)

Expenses related to purchase of treasury shares – – – – – (0.2) (0.2)

Close period share buyback programme – – – – – (30.1) (30.1)

Profit for the financial year – – – – – 538.0 538.0

Dividends paid to owners of the Company – – – – – (126.2) (126.2)

Equity-settled transactions – – – – – 2.0 2.0

At 30 September 2014 (149.9) 61.1 1.6 (87.2) 535.9 2,419.0 2,867.7

Treasury shares

Purchase of treasury shares

During the year the Company purchased 24,206,805 shares (2013: 77,254,057) at a cost of £89.5m (2013: £251.0m). Shares were repurchased

at a weighted average price of 369.8p per share; the highest and lowest prices paid for these shares were 399.0p per share and 312.3p per share

respectively. Shares purchased under the Group’s buyback programme are retained in issue until cancelled and represent a deduction from equity

attributable to owners of the parent. During the year no treasury shares were cancelled. At 30 September 2014, 36,065,411 shares were held

as treasury shares, representing 3.2% of issued share capital.

Close period share buyback programme

The close period buyback programme for £60.1m (2013: £30.0m) relates to the purchase of the Company’s own shares. Citigroup Global Markets

Limited has been appointed to manage the irrevocable buyback programme during the close period which commenced on 1 October 2014 and will

run up until 3 December 2014.

Employee Share Trust

The Company holds treasury shares in a trust which was set up for the benefit of Group employees. The Trust purchases the Company’s shares in the

market or is gifted them by the Company for use in connection with the Group’s share-based payments arrangements. The Trust holds 5,407,155

ordinary shares in the Company (2013: 5,428,407) at a cost of £0.9m (2013: £0.9m) and a nominal value of £56,880 (2013: £54,284).

The Trust originally purchased the shares in 2006, and further shares were acquired by the Trust in 2010 with the cost being reflected in retained earnings.

These shares were acquired by the Trust in the open market using funds provided by the Company. In January 2013 the Company gifted 5,000,000 shares

from purchased treasury shares to the Trust.

The costs of funding and administering the scheme are charged to the profit and loss account of the Company in the period to which they relate. The

market value of the shares at 30 September 2014 was £19.8m (2013: £17.9m).


Other notes

10 Related party transactions

The Company has taken advantage of the exemption available under FRS 8, “Related Party Disclosures”, not to disclose details of transactions with its

wholly owned subsidiary undertakings.

11 Post-balance sheet events

For details refer to note 17 in the Group financial statements.

Shareholder information

Financial calendar

Annual General Meeting 3 March 2015

Dividend payments

Final payable – year ended 30 September 2014 6 March 2015

Interim payable – period ending 31 March 2015 5 June 2015

Results announcements

Interim results – period ending 31 March 2015 6 May 2015

Final results – year ending 30 September 2015 2 December 2015

Shareholder information online

The Sage Group plc’s registrars are able to notify shareholders by e-mail of the availability of an electronic version of shareholder information. Whenever

new shareholder information becomes available, such as The Sage Group plc’s interim and full year results, Equiniti will notify you by e-mail and you will

be able to access, read and print documents at your own convenience.

To take advantage of this service for future communications, please go to www.shareview.co.uk, where full details of the shareholder portfolio service

are provided. When registering for this service, you will need to have your 11 character shareholder reference number to hand, which is shown on your

dividend tax voucher, share certificate or form of proxy.

Should you change your mind at a later date, you may amend your request to receive electronic communication by entering your shareview portfolio

online and amending your preferred method of communication from “e-mail” to “post”. If you wish to continue receiving shareholder information in the

current format, there is no need to take any action.

Advisers

Corporate brokers and financial advisers

Citigroup Global Markets, 33 Canada Square, Canary Wharf,

London, E14 5LB

Solicitors

Allen & Overy LLP, 1 Bishops Square, London, E1 6AD

Principal Bankers

Lloyds Bank plc, 25 Gresham Street, London, EC2V 7HN

Independent auditors

PricewaterhouseCoopers LLP, Chartered Accountants and Statutory

Auditors, 89 Sandyford Road, Newcastle upon Tyne, NE1 8HW

Registrars

Equiniti, Aspect House, Spencer Road, Lancing, West Sussex,

BN99 6DA

www.shareview.co.uk

Tel: 0871 384 2859 (from outside the UK: +44 (0)121 415 7047)

Fax: 0871 384 2100 (from outside the UK: +44 (0)1903 698403)

Calls to this number cost 8p per minute plus network extras. Lines are

open 8.30am to 5.30pm UK time, Monday to Friday.

Information for investors

Information for investors is provided on the internet as part of the Group’s

website which can be found at: www.sage.com/investors.

Investor enquiries

Enquiries can be directed via our website or by contacting our Investor

Relations department:

Murdo Montgomery

Director of Investor Relations

Tel: +44 (0)191 294 4190

Fax: +44 (0)191 294 0002

The Sage Group plc

Registered office:

North Park

Newcastle upon Tyne, NE13 9AA.

Registered in England

Company number 2231246

This report is printed utilising vegetable based inks on Heaven 42 which

is sourced from well managed forests independently certified according

to the rules of the Forest Stewardship Council (FSC®). This report was

printed by an FSC® and a carbon neutral printing company and Heaven

42 is manufactured at a mill that is certified to the ISO14001 and EMAS

environmental standards

Designed and produced by Black Sun Plc

Printed by CPI Colour

165

The Sage G

roup plc Annual R

eport & A

ccounts 2014

The Sage Group plc North Park Newcastle upon Tyne NE13 9AA United Kingdomwww.sage.com

View this report online at www.sage.com/investors

annual report & accounts trusted supporter of …2010 2013 2014 flat 12% 2012-2% 2011 14% 16% 8%...

Documents